So You Want to Renegotiate? Banks Hands May Be Tied.

There is a very clever hidden problem with trying to get banks and other financial agencies to renegotiate the debts for homes, businesses, and other borrowers. Behind the mortgage contracts, behind the lines of credit, and behind a lot of other debts there are contracts that are seldom revealed.

Why? Simple. The contract holders hidden behind these are BETTING on mortgages going into default, lines of credit and other loans also going into default, even the banks are being bet on to fail. Sound crazy? Crazy like a fox in the henhouse!

Take for example a simple mortgage on a house worth, say $200,000 and that mortgage is under water. Then the bank has separated itself from the mortgage by a contract to someone else, and that entity has use Credit Default Swaps to ensure they get something. The contract between the entity and the bank binds up any change in the mortgage, because the entity holding the contract WANT to see you lose, want to see the bank lose! That is where the entity makes more money from the default.

This same process is done with lines of credit for business, using the material wealth of the company for collateral.

Unless and until the entities who have these Credit Default Swaps are either put behind bars, investigated for forcing you and the banks to maintain a very unhealthy situation so the entity makes money, or the CDS contracts themselves are judged to be a hindrance to both you and the banks in renegotiations by the courts, you and the banks are going to stay in trouble.

Perhaps the smartest move here is to hire a lawyer, and take this to a court, using warrants to find out who holds the banks hostage to contracts like this. Unless and until the banks can get themselves out of these contracts by either using law or by the Federal Government outlawing Credit Default Swaps entirely, the economy cannot reasonably regain any stability.

When anyone bets on failure, and makes millions from the economic failure of banks, ordinary families, and businesses, then the whole of society has a huge problem.

The time has come to uncover these entities, reveal just how much damage has been created, and publish the terms of these very nasty contracts. The time is long overdue to find the roots of the problem and investigate just how much power some of the entities have over everyday lives.

So, if anyone is wondering why the banks are sweating and making things tough for renegotiation, then perhaps look behind the banks to the contracts betting on YOU going under, along with your banker, and the entity will be taking the money to another bank or hiding it for future abuse of others.

Credit Default Swaps took down Merrill Lynch, put many banks into such a mess they will take years, if they even survive, to get back on solid ground. My belief here is that, even now, someone is putting out Credit Default Swaps on the banks that do exist, the businesses, and even some of the major corporations like General Motors, Chrysler, and the casinos owned by Donald Trump.

Outlaw the damn things, now!

Credit Default Swaps are Insurance without Regulation, click here for fuller information

Corporations, Banks, Others Way Too Big Now?

This may sound like a simple question, but with all the bailouts and over 7.7 TRILLION dollars spent in the US alone, which amounts to $24,000 dollars per adult and child, I am really wondering if international linkages and businesses have gone beyond reasonable limits.  The reasoning for bailing out AIG was that “it is too big, too involved, to allow to go under” and now Citibank and subsidiaries along with the Big 3, Ford, Chrysler, General Motors are all in that same basket, all “too big, to much an integral part of the economy” to be allowed to fail too.

Maybe one of the plans or regulations or restrictions of some kind should be put on corporations that get to the point where the failure will create a massive disaster. I don’t know, but one thing I do know is the old saying, “The bigger they are, the harder they fall“. I suppose the corollary to that is the deeper the hole they create when they do fall.

Wal Mart is another part of the huge economic downturn. How on earth can I say this? Well, if most remember, when Wal Mart moved into communities, small shops, business, suppliers all died off. What most people want are lower costs, true, but at what detriment to their own communities. Each small business in town paid separate taxes, school, road, etc. as well as creating jobs for the owners and the employees in that small business. When a store like Wal Mart appears, the tax base goes down, not up. The wages for businesses who supply smaller stores are usually better than those paid by the big box stores, and most owners try to provide benefits for themselves and their employees. Wal Mart is well known to buy goods produced overseas, sending the money to foreign suppliers along with jobs.

Yep, people may get some things cheaper, but overall the economy loses. Businesses that worked in tandem with their neighbours often worked more efficiently, and became an integral part of the community, with problems dealt with on site. Again, is this type of business “too big to be barred”?

If people want to have work, decent work, then maybe it is time for the small business owner to be allowed to thrive without dealing with the big box stores. Each of the big box stores hire fewer employees and pay them as little as possible. Employment goes down, not up. Imagine trying to get a foothold in business when you have to deal with those who have the funds to undercut you at every turn. Tough to make a decent living with that going on, yet people want work!

Some of the Wal Mart stores have been unionized. Yep, they have been. Yet, Wal Mart tried to make a case for closing the first store to become unionized by closing it and opening another close by. Hmm not a good way to be a decent employer or neighbour, or one that I would, personally, want to have nearby.

Yes, I do shop at one of the big box stores here, but I will never work or buy from Wal Mart. The way the company treats the general public, employees, and especially their suppliers is a methodology I cannot support. So, I speak with my dollars. I will shop at other stores that compete with Wal Mart instead.

Big banks, with many arms into all kinds of financial realms, can make a very shakey structure if one part is weakened. Citibank is one of those, with a multiplicity of arms. GM even got into mortgages, instead of maintaining the focus on automotive innovation.  AIG got into some financial areas it should never have, so when it got into trouble, out goes the tax man to pay up. AIG was supposed to be an insurance company, backing mortgages. See a theme here? Corporations did not keep their focus, did not keep their area of expertise intact, and others, like Wal Mart, have removed small businesses all over the country, even internationally. The effects are now being seen as people are either worried about jobs, or out of the workforce, maybe for a long time now.

Bigger is defninitely NOT better, when bigger can crater economies.

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.

This is the End of an Era

The Government is NOT doing what is necessary, there is a better way.

Well, after watching a huge number of news broadcasts, reading until I feel like putting every written word into a huge pixel black hole, I have come to see that the way things have been working for the last 25-30 years is over, done like our Thanksgiving turkey this weekend.

People have had the expectation that they could borrow up to 6% over their income and still keep going. That is bizarre to me. Spending 106% of your income and expecting to keep things going is expecting yourself to become more than you can ever be!

Housing prices have risen so fast that the costs have ballooned way over the true price, the real value, of those same houses. Speculators, agents who took fees to sell off the bundled mortgages managed to make the whole market balloon to the point where things went BANG!

Make no mistake, just like Milken, et al , the agents had no compunction about taking the fees, and putting ordinary mortgages into a highly risky place, leaving those who were the original lenders and the house purchasers in a position where it became impossible. There became a distance between the lender, the mortgage and the purchaser. The agents did not care, do not care, and will not care who the purchaser is or was, and furthermore the agents have their money and can walk away without even blinking.

The Paulson idea of taking out the toxic sludge is never going to work. Why? Because it is impossible to put a value on paper that is basically completely impossible to unwind again.

The markets should go down again this week. Why? Because the toxic sludge from the collapse of Lehman Brothers is going to be due. Those who were tied into that sludge are going to have to take some huge losses again.

There has to be a complete understanding from main street here. No longer can we use credit to solve problems, no longer can anyone expect to have a charge card without realizing they are literally borrowing money at exhorbitant interest without that interest being a huge balloon that also goes BANG! The worst thing that older people can do right now, in my opinion, is to take out a reverse mortgage. Why? Because they may end up with a home that is never going to be worth what they are borrowing against, and end up being forced to repay instead.

Whether this all ends up being a very long, very harsh road, or a bumpy ride that is shorter depends on how banks deal with the mortgages that are not in default, yet, and the people who have taken those mortgages out rewriting the mortgages to reflect the true price of the houses in THIS current market.It also truly depends on how the various administrations in the US, Europe, Britain, Hong Kong, Australia and others deal with this. They can either make it a hell of a lot worse or shorten the drop. My gut feeling is that, unfortunately, the advice that most of the governments, administrations and other are getting is wrong, totally wrong.

Unfortunately I have been watching this all happen and, some years ago, realized the way things were going would end up dropping like a huge boulder on house at the bottom of the hill. In other words, although this seems surreal, I am not all that surprised. The idea that capitalism is self-regulating is just flat silly. Greed cannot be regulated, only controlled, using laws and regulations. Yes, there are flaws to what humans do, but at least we all SHOULD be learning WHAT NOT TO DO!

This could get very, very ugly.

Too Simple Solution to Mortgage Credit Freeze?

Someone is usually correct when they say to keep things simple, tackle a large problem in smaller pieces.

So, here is one idea, maybe a solution for those banks with homes about to foreclose. Talk to the Fed, or some agency with some money to allow, then take that money and put it equally against the principle on the mortgages. Why? It cuts the amount of debt and thereby cuts the payments, even reduces the overall interest payable.

Small steps, but if Paulson could manage to get into the books at Fanny Mae and Freddy Mac, then apply federal funding to mortgages that way instead of risking banks reintroducing those toxic debt items back, the overall economy would likely benefit better.

The way I see this is simple too. Any naturally growing thing needs to have the roots, the inner basics strengthened before any plant or animal can produce healthy growth. Like making the roots of a tree strong will keep the entire tree in better shape.

Actually the same principle can be applied to most things. Take care of the solid ground, feed the basic inner system and the rest will weather storms.

Example: Bank of Snow has 30 mortgages on it’s books, with at least 20 heading toward or in default. Fed or state funds are provided to the bank to be divided amongst the entire set. ($300,000) Bank of Snow writes down each mortgage by $10,000 meaning each mortgage is now in a much healthier position.

Example 2: Family of 6 has two adults, 4 children. Going out less, perhaps working part-time for babysitting or other services, the family is able to collect $2000. Then the two adults approach their bank and seek a penalty free payment on the principle. (Principle is the actually purchase price)

Not huge ideas, but with the way things are going, maybe one of the simplest ways to get more people staying in homes, cutting down debts and providing the banks with some room to move again.

There are a lot here that are using skills they have brushed off to make money on the side. Making furniture, sewing and mending clothes, working on cars, painting, babysitting, even gathering pop bottles (they are refundable here for recycling) and working in gardens, using their cars for neighbours to run errands.

Strangely enough, tough times are often when people become the most creative in finding solutions, and when things get tough, breaking down tasks to simple, relatively easy bits, often gets the job done.

Differences in Mortgage Lending and Credit Cards

I live in one of the countries world wide that have gone way over the limit on personal debt. Credit cards and mortgages far over the ability to repay and savings basically non-existent. There will be repercussions coming. When? I don’t know.

The US consumer is not perhaps the worst, but with the way the banking and lending practices are allowed to be basically unregulated or very seldom watched, this makes it a highly volatile situation. What is remarkable in history is that the US is the ONLY country to go through this type of crisis, not once, not twice, but three times and a few lesser crises in between.

Why? Well, from what I can see, the government is seen as an enemy and regulations are seen to bind banks, lending and mortgages to unfavourable levels. Well, if unfavourable is the watchword here, then I would say the current situation is that.

JPMorgan just bought Washington Mutual, after the government seized it. One of the largest banking buys in history. The Treasury and Federal Reserve are trying, maybe in vain, to get a very unfavourable bailout of the lending industry passed using a very vaguely written bill.

Try looking at other countries, and see if those business practices would work for personal lending, mortgages and compare the differences.

In France, for example.

The BBC’s Emma Jane Kirby asks if other nations should take a leaf out of the thrifty Gallic book?
French credit cards are little more than debit cards, so there is no question of simply sticking a couple of flat screen TVs on your credit card and hoping to pay for them later – if there are insufficient funds in your account, your bank will immediately block the transaction.
“People here don’t believe you can just put your debts together and get them refinanced… But in London… it was as if wealth was something you could get from a bank, it’s a sort of miracle people seem to believe in England.
But France still believes in strict rules and regulations,
Finance Minister Christine Lagarde says.
“Expect two conditions – a down payment of 20% of the value of the house plus mortgage [repayments] which will not exceed 30% of income.
“You already have a pretty good safety net there and clearly no real estate financing similar to the sub-prime market that has existed in the US and which has hurt the financial system so much,” Ms Lagarde says.

Here, in Canada, all mortgages must be insured, must be registered and the banks insist on at least a 10% downpayment. This used to be lower, but with the way properties were selling to people who were noticeable way over their limit on the ability to repay, the regulatory agent, CMHC chose to change the qualification level and changed the amortization time. Just a short time ago, mortgages could be repaid over 40 years, now they are limited to 35 years.

Credit cards are still one of the highest risk debts out there, with up to 29% interest, and a lot of people here have done what is considered very high risk. They have put the debts into one consolidation loan, then started charging again on the cards.

North Americans, U.K. residents, are all very high consumers, with extremely high debt levels. This is now coming home to roost, unfortunately.

History has lessons, and I am not going to reiterate all of them. No point. But some of the historical commentary from people living during the Great Crash in 1929 ring ominously.

1929 Here is what happened.

“In August of 1929, the Fed began to tighten the money supply continually by buying more government bonds. At the same time, all the Wall Street giants of the era, including John D. Rockefeller and J.P. Morgan divested from the stockmarket and put all their assets into cash and gold.

Soon thereafter, on October 24, 1929, the large brokerages all simultaneously called in their 24 hour “call-loans.” Brokers and investors were now forced to sell their stocks at any price they could get to cover these loans. The resulting market crash on “Black Thursday” was the beginning of the Great Depression.

The Chairman of the House Banking and Currency Committee, Representative Louis T. Mc Fadden, accused the Fed and international bankers of premeditating the crash. “It was not accidental,” he declared, “it was a carefully contrived occurrence (created by international bankers) to bring about a condition of despair…so that they might emerge as rulers of us all.”

On Sunday, December 23, 1913, two days before Christmas, while most of Congress was on vacation, President Woodrow Wilson signed the Federal Reserve Act into law. Wilson would later express profound regret over his tragic decision, stating:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world – no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”

Sound familiar? It is long overdue that the American policy makers, the guy on the street, called for regulation, freedom from the “duress” of a small group of men in Wall Street and the credit markets.

I, personally, would love to see the American voter, worker, business man, corporate CEO outside Wall Street, all demand that regulations be put in place and the funds provided to make sure those regulations were obeyed. Right now there are over 50 different agencies, and consolidating those into a few lesser number would make the whole situation far more effective, far more efficient, and maybe, just maybe, the american taxpayer WOULD find themselves never, ever again facing another meltdown.