photo credit: Margaret Bourke-White, 1904-1971
a housing development (like Levittown) in construction in the 1940's
As a result, our civilization has formalized the process of finding and obtaining places to live into the profitable real estate market with many layers of people making a little profit (or a large profit) from an individual's desire to own a piece of the pie.
Instead of the earlier, simple transaction where rural individuals traded their goods with someone for a chunk of land or a dwelling (or both), we live now within a complex system of loans and taxes and lawyers and inspectors and municipalities all of whom dictate part of the cost and system for the granting of clear title to property. "Ownership" is not as clear as we were led to expect.
As a friend said, aren't we all simply "renters" on planet Earth?
As the layers of people, and municipalities making profits in the real estate market increased, the possibility of problems blossomed. Excessive greed and related complexities increased exponentially. And with increasing less frequency as one would hope, our leaders actually passed legislation during the Carter presidency which made it possible or easier for the "little guy" to obtain part of the American Dream. However concepts with the best intentions... often go awry.
For the past several years the housing market has been cattle prodded by a government (or that's one excuse) to give everyone or nearly everyone, no matter how little money they made or had on hand, a chance to buy a home. More buyers, more profits, more homes for sale, prices increase, rates of interest for mortgage loans fluctuate, greater buyers' power grows, more lenders compete. Sounds like normal capitalism in a free market, doesn't it?
Naturally the larger the demand for homes, the more potential profit in the marketplace and many of us (in homes) looked on the "boom" happily until we began paying the higher taxes levied upon our increasingly more (on paper) valuable property. Hell, it's the same damn house...why is the state asking for more and more taxes? How has the state contributed to the value of my home?
More and more houses went onto the market. In some cases lower and middle class owners were unable to keep up with the doubling annual taxes and insurance added to a house's normal expenses and were forced to try and sell before they went into default. In other cases owners hoped to capitalize on the new higher value of their home by selling (although where they would move to is a mystery.) But as buyers thinned out, inflated property prices began to fall, leaving many owners with mortgages higher than the falling value of their home. The cash out lower interest rate deals (some of them sub prime adjustible rate fiacsos) which the industry heralded pre, post and at the height of the real estate boom entangled almost every home owner in some way be they upper class, middle class, lower class or illegal aliens. Caught in the whimpering of the failing boom – some could cash correct. Others could not.
The real estate boom was a supply and demand phenomenon wasn't it?
Now I'm not so sure.
Now I'm not so sure.
It seems that caution was thrown to the wind in efforts to make home ownership a reality. In the creating of all sorts of shaky deals and complicated vehicles and variable interest rates for lending rather suspect loans to a greater number of individuals, caution became a phenomenon of the past. The real estate market became more than the finding and selling or buying of a property...much, much more.
Now we find out that the true marketplace was in the buying and selling of bundled loans to other sources that thought they could do something kinky with the profit margin and sell it to somebody else. And these sorts of bundles were so secure, being based on actual real property in a boom market, that they were insured against defaults by other organizations who took a piece of the profits for creating those assurances that these bundled loans "were good." And so on and so on.
Didn't anyone guess that the risks of the loan obligations of a few or a great many of those actual human families (bundled into more risky financial vehicles) might become defaulted upon if interest rates made the cost of loans beyond those families' means?
Now we hear that this senator or that senator warned somebody along the regulatory line last year or the year before that these so-called unregulated derivatives (what somebody for some unknown and mysterious reason has named the bundled bits of sub prime and fixed mortgages)...these "vehicles" were dangerous. And we're given the reasons...no regulations (from the Democrats), no regulations (from the republicans), bad legislation (from the republicans), bad leadership (from the Democrats), complex systems (from the treasury department), weapons of mass destruction (from Mr. Buffet), too many illegal aliens given mortgages (from the republicans), I lost my stock value too (from the CEO making $480,000,000.00 per year), should cancel our next executive outing (from the insurance firm bailed out on taxpayer dollars with the $200k spa bill on our tab), how can I save my home (from the family behind on their mortgage/tax/insurance payments on a loan which jumped up to 11% interest from a 4% sub prime variable loan when they "bought" the house), and where is all that $700 billion going (from every American), and do you think this is going to work (from Charlie Rose's nightly interviews of whichever "expert" he happens to corral), and why is the stock market still crashing (from the brokers), and investor confidence will be restored in this difficult time (from our lame duck president.)
duh.
Why would financial markets want regulations on deals on which they could make enormous profits while no one was looking (or understanding what they were doing)? Why would we expect those beholden to those financial barons (our elected representatives) to encourage the creation of regulations which might stymie the flow of profits to big business? What's sort of system works like this? Oh yeah, the American way.
Are we incapable of recognizing that the same system, let's call it capitalism, which encourages corporations and the political leaders they influence (via cronyism and those peddlers on L street) and support (in campaign contributions) often has nothing to do with protecting its citizens, until somebody sticks a pin in the balloon?
Who knows?
But, like every house built of cards, the entire Ponce scheme collapsed when not a few defaults "happened" as the economy tightened and those beautiful low, low sub prime interest rates on variable rate mortgages began to climb...but a whole lot of defaults "happened"...making the paper the bundled deals were written upon of less worth than the value of the loans. We've all heard this was happening for months now, a couple years. Wasn't anyone in the treasury department listening? Bailing out the Fannies and Freddies is just one part of the so-called solution. Somewhere down the line, all of the defaulted home loans are backed up by actual property with some sort of intrinsic value (once the real estate bubble breaks and cascades down to fill the pool of the what's left of housing market.)
Did the US government obtain ownership to the real estate in this $700,000,000,000.00 deal to bail-out the faltering and bankrupt companies who entered into the business of buying the ill conceived and shady derivative paper? Well no. I'm wondering why not?
Why not get rid of the middle man and layers of profit, which didn't work anyhow and let those corporations dry up. Haven't we proved they suck?
Can we collect all the homes and give them back to people? Or sell them cheaply with fixed rate low interest rate, truly government guaranteed mortgages (they're called FHA - Federal Housing Administration mortgages and have existed since 1934) as inner city real estate is often sold in the process of turning around a worn out section of a city. This time it's simply a worn out section of our economy. Except in this case nothing besides the companies of the greedy bastards who made the mess is actually run down. Isn't the buying up of the defaulted mortgages the McCain campaign idea? Why isn't it the Bush idea? Or the Obama idea? Or the Senate's idea? Does the Senate understand what is going on? Or are our representatives sheep following a few Treasury Department Svengali herders and as stupid as they appear? Is our government, in handing out vast amounts of money, asking for some sort of security? If not, why not?
Now we find out that the true marketplace was in the buying and selling of bundled loans to other sources that thought they could do something kinky with the profit margin and sell it to somebody else. And these sorts of bundles were so secure, being based on actual real property in a boom market, that they were insured against defaults by other organizations who took a piece of the profits for creating those assurances that these bundled loans "were good." And so on and so on.
Didn't anyone guess that the risks of the loan obligations of a few or a great many of those actual human families (bundled into more risky financial vehicles) might become defaulted upon if interest rates made the cost of loans beyond those families' means?
Now we hear that this senator or that senator warned somebody along the regulatory line last year or the year before that these so-called unregulated derivatives (what somebody for some unknown and mysterious reason has named the bundled bits of sub prime and fixed mortgages)...these "vehicles" were dangerous. And we're given the reasons...no regulations (from the Democrats), no regulations (from the republicans), bad legislation (from the republicans), bad leadership (from the Democrats), complex systems (from the treasury department), weapons of mass destruction (from Mr. Buffet), too many illegal aliens given mortgages (from the republicans), I lost my stock value too (from the CEO making $480,000,000.00 per year), should cancel our next executive outing (from the insurance firm bailed out on taxpayer dollars with the $200k spa bill on our tab), how can I save my home (from the family behind on their mortgage/tax/insurance payments on a loan which jumped up to 11% interest from a 4% sub prime variable loan when they "bought" the house), and where is all that $700 billion going (from every American), and do you think this is going to work (from Charlie Rose's nightly interviews of whichever "expert" he happens to corral), and why is the stock market still crashing (from the brokers), and investor confidence will be restored in this difficult time (from our lame duck president.)
duh.
Why would financial markets want regulations on deals on which they could make enormous profits while no one was looking (or understanding what they were doing)? Why would we expect those beholden to those financial barons (our elected representatives) to encourage the creation of regulations which might stymie the flow of profits to big business? What's sort of system works like this? Oh yeah, the American way.
Are we incapable of recognizing that the same system, let's call it capitalism, which encourages corporations and the political leaders they influence (via cronyism and those peddlers on L street) and support (in campaign contributions) often has nothing to do with protecting its citizens, until somebody sticks a pin in the balloon?
So who got caught, when did they know they were doomed
and why is our government "fixing" them?
and why is our government "fixing" them?
Who knows?
But, like every house built of cards, the entire Ponce scheme collapsed when not a few defaults "happened" as the economy tightened and those beautiful low, low sub prime interest rates on variable rate mortgages began to climb...but a whole lot of defaults "happened"...making the paper the bundled deals were written upon of less worth than the value of the loans. We've all heard this was happening for months now, a couple years. Wasn't anyone in the treasury department listening? Bailing out the Fannies and Freddies is just one part of the so-called solution. Somewhere down the line, all of the defaulted home loans are backed up by actual property with some sort of intrinsic value (once the real estate bubble breaks and cascades down to fill the pool of the what's left of housing market.)
So is the American government now the world's biggest landlord? Or should it be?
Why not get rid of the middle man and layers of profit, which didn't work anyhow and let those corporations dry up. Haven't we proved they suck?
Can we collect all the homes and give them back to people? Or sell them cheaply with fixed rate low interest rate, truly government guaranteed mortgages (they're called FHA - Federal Housing Administration mortgages and have existed since 1934) as inner city real estate is often sold in the process of turning around a worn out section of a city. This time it's simply a worn out section of our economy. Except in this case nothing besides the companies of the greedy bastards who made the mess is actually run down. Isn't the buying up of the defaulted mortgages the McCain campaign idea? Why isn't it the Bush idea? Or the Obama idea? Or the Senate's idea? Does the Senate understand what is going on? Or are our representatives sheep following a few Treasury Department Svengali herders and as stupid as they appear? Is our government, in handing out vast amounts of money, asking for some sort of security? If not, why not?
I want a money back guarantee
So what's "commercial paper?"
(besides what today's tax dollar is supposedly pumping up)
Funding Commercial Paper is another part of this scheme to "fix" the greed and stupidity of the few. Commercial Paper is the unsecured loans that big corporations procure ( for 2 -270 days) to keep their business afloat. Commercial Paper is "rated" based on the assets and so forth of the businesses borrowing and these loans are the "credit" in the crunch that we've been hearing about drying up over the past weeks. Apparently the credit crunch had trickled down where only overnight loans are available or one or two day loans. And which then cause small and large companies to not be able to borrow easily "for their internal needs" making it necessary for these companies to live within their means, like the rest of us.
As we know the "biggest losers" among companies hadn't enough "means" and not being able to borrow to keep themselves afloat until they could leverage the next deal... caused some companies to collapse since all they really were/are are shells for the next shell game. The worst of these faltering financial institutions (as I said, the shell in the shell game) which our government has seen fit to bolster with $700,000,000,000.00 (I simply like writing out all those zeros...I've never had the occasion before, so indulge me) are simply vehicles for transferring paper, commercial or otherwise with no true assets or tangible products. A good part of their business was buying, selling and bundling papers created from bits and pieces of risky mortgage loans.
Making the business of our grandest financial institutions basically a "bet" that the holder of the loans would be able to repay.
And they lost the bet.
And so, every American (every world citizen) all are suddenly holding the same losing hand? What happened to the "hold 'em or fold 'em" philosophy of good gambling? Were the stakes so secure or the world so naive that our grand financial institutions could simply bluff and get away with it? Until somebody called "all in" and they were finally compelled to show us their cards...and fold.
Commercial Paper vs. Credit Card Debt
The entire system of personal credit cards is remarkably like the commercial paper formula. However in the credit card scenario a normal human being (you and me) with unsecured loans in the form of credit card debt which is extended basically to anyone who wants it...has to pay interest rates of at the very least 8 or 9% to the average of 18 - 22% for a normal annual credit debt which is NOT paid off in entirety on a monthly basis. The highest APRs are extended to those with less than pristine credit ratings, or those who simply don't call up and demand a lower annual APR from their credit card companies. Most Americans have their own personal unsecured loan(s). Functioning in civilization without credit cards is difficult. There were years in the life of a bedeviled artist when only Discover (card) thought I was a risk worth taking. Now ask if I'm a loyal customer? Pretty much.
The corporations who use commercial paper unsecured loans pay between 4% and 6% interest for their short term loans. Do you see a disparity? One would think that if you wanted to keep a citizen's money in his or her pockets (as all those running for re-election or speechifying us with lengthy complex explanations of the meltdown...including the media who make their livings clarifying the spin cycles of politicians and elected or appointed government officials), it would make sense to regulate the rates of interest charged by credit card companies. Why should the high profit margin to credit card companies be "encouraged?" Isn't charging a customers 22% annually to loan out short term unsecured credit when the credit card company can borrow money at a 5% or less rate in commercial paper - excessive? The credit card company has no reason to spend any of their profit because even with their continual borrowing of commercial paper...they stand to bring in a 17% rate of profit per year. Even with overhead and bill collectors' fees, a credit card company is a highly profitable enterprise.
Of course nobody likes to hear about a CEO of a bankrupt collapsed company bringing in a $400,000,000.00 - $500,000,000.00 salary. I've recently read that of the 5 top CEOs from the big financial groups, 3 of which collapsed during the past two weeks....of those 5 CEOs the gross income they collectively gathered was more than a billion dollars over a couple years.
What did 3 or these 5 guys do except, in the end, bankrupttheir companies? Were the gains to the stockholders of these companies grand enough to offset their total lose of investment last week? Should anyone collect a salary for doing a bad job....when the big ticket salaries might have kept the company liquid? When anyone else in the American lower hierarchy of business does their job badly they are fired. Why can't CEOs, under these circumstances where their companies tanked, sunk, were plowed under....why aren't these guys being fired retroactively? Someone on a NPR call-in program said that it is illegal to retroactively require someone be accountable financially for the loses of a firm he/she heads unless fraud is involved. The corporation is the shelter and the individual's steering the corporation are NOT at fault. Well, who the hell is? One doesn't have to speculate all that far to know who wrote that law. What constitutes fraud in the case of ruining a company, losing billions of investor dollars? Isn't knowingly hiding the lack of company assets in investments one steered the company to make...a cover-up? Is a cover-up fruad? And if it isn't, why isn't it?
What's the incentive for a CEO to do a good job? It can't be all a matter of ego. Isn't this a place for better regulation and new rules which WILL jeopardize bad CEOs and executives and government officals (including treasury secretaries and presidents) retroactively if they create a giant mess in the American sandbox? Isn't it stupid of the American government to issue "get out of jail free" cards at the start of the game? Every American embraces "do not pass GO, do not collect $200."
The corporations who use commercial paper unsecured loans pay between 4% and 6% interest for their short term loans. Do you see a disparity? One would think that if you wanted to keep a citizen's money in his or her pockets (as all those running for re-election or speechifying us with lengthy complex explanations of the meltdown...including the media who make their livings clarifying the spin cycles of politicians and elected or appointed government officials), it would make sense to regulate the rates of interest charged by credit card companies. Why should the high profit margin to credit card companies be "encouraged?" Isn't charging a customers 22% annually to loan out short term unsecured credit when the credit card company can borrow money at a 5% or less rate in commercial paper - excessive? The credit card company has no reason to spend any of their profit because even with their continual borrowing of commercial paper...they stand to bring in a 17% rate of profit per year. Even with overhead and bill collectors' fees, a credit card company is a highly profitable enterprise.
Isn't a credit card company a lot like a more socially acceptable loan shark?
Isn't this some of what Americans are screaming about?
Unfairness, inequities, like that?
Isn't this some of what Americans are screaming about?
Unfairness, inequities, like that?
Who is bailing out the Americans who are caught in the American Dream?
Of course nobody likes to hear about a CEO of a bankrupt collapsed company bringing in a $400,000,000.00 - $500,000,000.00 salary. I've recently read that of the 5 top CEOs from the big financial groups, 3 of which collapsed during the past two weeks....of those 5 CEOs the gross income they collectively gathered was more than a billion dollars over a couple years.
Do the math, multiply by the fortune 1000
What did 3 or these 5 guys do except, in the end, bankrupttheir companies? Were the gains to the stockholders of these companies grand enough to offset their total lose of investment last week? Should anyone collect a salary for doing a bad job....when the big ticket salaries might have kept the company liquid? When anyone else in the American lower hierarchy of business does their job badly they are fired. Why can't CEOs, under these circumstances where their companies tanked, sunk, were plowed under....why aren't these guys being fired retroactively? Someone on a NPR call-in program said that it is illegal to retroactively require someone be accountable financially for the loses of a firm he/she heads unless fraud is involved. The corporation is the shelter and the individual's steering the corporation are NOT at fault. Well, who the hell is? One doesn't have to speculate all that far to know who wrote that law. What constitutes fraud in the case of ruining a company, losing billions of investor dollars? Isn't knowingly hiding the lack of company assets in investments one steered the company to make...a cover-up? Is a cover-up fruad? And if it isn't, why isn't it?
What's the incentive for a CEO to do a good job? It can't be all a matter of ego. Isn't this a place for better regulation and new rules which WILL jeopardize bad CEOs and executives and government officals (including treasury secretaries and presidents) retroactively if they create a giant mess in the American sandbox? Isn't it stupid of the American government to issue "get out of jail free" cards at the start of the game? Every American embraces "do not pass GO, do not collect $200."
Why aren't there rules in the game?
A Newer Deal
photo credit: Margaret Bourke-White, 1904-1971
It's totally a no win situation for the common man. Who can trust that the shoring up of a flounderings of Wall Street will keep Main Streets' citizens afloat? A house of cards always falls down? Can any amount of bail out funds "fix" it? Or is an ethical component missing from whatever good business has become?
Will the quick fix of $700 billion simply prop up the house of cards or can we hope for a new deck? Will $700 billion simply reposition the shells in the game or can we finally locate and remove the pea? Will anybody shout out...."hey, the emperor's not wearing clothes." Not withstanding the view of a naked emperor...hoping it isn't George W., are we this stupid? Perhaps we are.
A worst case scenario
So today's influx of part of that $700 billion dollars into the commercial paper bank(s) will keep big business operating as it has since Regan occupied the white house....well beyond their means, with some "promises" of possible future government regulations. While Americans, who are in every sense the "owners" of this country, who hire out the complexities of the management of the United States to those we elect to public office....have to live well within our means.
The middle class is shrinking exponentially and dramatically and dribbling into the invisible outter edge of humanity. The trickle down theory of economic growth or shrinkage is still in effect. If companies can function well and make profits, will then Americans prosper (and by default, this being a global economy, planet earth's citizen prosper)? Can the bursting of our economic bubble be patched while we wait for its guts to spill into the Main Stream of Main Street?
Have we become one giant economic sewer?
Will the benefits of trickling down post 2008 take the next decade to reach those lowest in the pool of wealth? Can recovery ever dribble into the dessert and parking lots where those citizens pushed out of the pool now live and struggle and hope? Is that too many cascading water analogies?
Can America afford to not look out after our own?
We've been warned in the past few days that we are at the start of a difficult economic period of our history. Yeah, well duh.
What does economic meltdown look like day by day?
Can we expect that the savings of individuals will be shrinking and disappearing...bank holdings will be disappearing, smaller banks will be bought up by bigger ones...the ability to make loans on a regional level will be ending or nearly unavailable....charities who support the systems and people the country is unwilling or unable to help will become more and more pinched and overwhelmed and falter....and retail will become a thing reserved for the rich...prices will correct and drop for everything eliminating some or all of the profit for the manufacturer, losing jobs, closing more doors...small market farms will disappear and be bought up by the factory farms....the food supply will become more and more toxic as profit instead of food becomes the motive for farming or we rely more and more on unregulated (there's that word) imports...the haves and the have nots will continue to separate by greater and greater variables....the middle class will slip lower perhaps into the poverty class?
Will our government be forced somehow finally
to support America's
"we the people?"
to support America's
"we the people?"
Will our government become bankrupt? Aren't we already bankrupt if our country's treasury is stretched way beyond its means and borrowing heavily from foreign powers? Our national debt yesterday went beyond the figures on the tote board in Times Square. Someone is buying a new board. That's one solution.
One day the United States may have to go into chapter 11 (or for this country perhaps it will be chapter 1776) when no other county has the means or inclination to loan us more money. Having borrowed so extensively from China (and others), one recourse might be to sell off a few US assets....perhaps a little real estate could be sold considering the central so-called "cause" of our current financial woes.
I'd suggest we sell off Alaska. Maybe, like the Alaskan governor's jet, we could sell her state on ebay. That said, the good news is Sarah Palin will become somebody else's "nudge, nudge, wink,wink" girl. One might think that the grizzly bears, wolves, polar bears and all the other wild life and wild country some of us know are America's true national treasurers - will no longer be "protected" by the Environmental Protection Agency (EPA). But the reality is these wild species and places will have more chance of survival in other hands than they have had under our current system of governmental "protection." Our government doesn't do to well on issues of regulation or protection...of anything or anybody. Is this a maverick enough solution for you Mr. McCain?
photo credit: Margaret Bourke-White, 1904-1971
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