QUALIFIED FEDERAL CONSUMER LOAN PROGRAM PROPOSAL
(CLP) 1-50K
Premiss. In today’s economic reality debt is an admissable “sin,” that is not only permitted, rather it is encouraged on the whole by church and state, so simply we are told to spend, buy, and consume... and this we do.
Debt is a modern reality for every individual, family, and even local government!
As such, we must see that an eighteen year old today looking to become a “college educated,” independent person must then be admittting to entree of no less than $50,000.00 of debt ceiling in a very humble estimate of “standard,” education.
If we are expected to have an “average” college level of training, and earn a “reasonable” salary, then we should pretty much be planning with debt as a reality, not an “escape, or emergency.”
By dealing with debtor’s thinking only in crisis type situation we create and engage in unrealistic, non-methodological, and, often, rash decisions and decision making processes.
This applies to the emblematic purchases, such as mementos, and translates all the way through to extraordinary purchases (home, auto, business, etc.).
So, even college educated, especially the most recently graduated, speaking as the last ‘wave’ (or two) of persons graduated in a similarly desperate Employment Situation, I was similarly disappointed for many reasons (1995, not being the best day to enter into the “economy,” laden with debt loads that at this vantage seem simple and easy) after graduating college. See Affordability.
Imagining a Consumer Loan Program. The image of a pup-tent... Four tent-pegs and a tent post (or two):
Peg One. Using “Sallie Mae-style Rules,” herein referred to as the 1-50K (that’s one dash fifty kay), would require the first fifty thousand in debt of any individual American Consumer to be treated with the forbearance, interest rate restrictions, and fair regulation and rules treatment, similar to if it was a student loan.
The proposal here may potentially include minor Consumer Loan Protection adjustments and improvements to the Sallie Mae Rules, but it does not and should not affect the actual Sallie Mae Program.
A new entity, or possibly branch or division of the Consumer Financial Protection Bureau, is proposed to be sponsored by the government for these purposes, as it relates to individual debt;
(A) Government Guarantee to it’s citizens (for that first $50,000)
(B) Regulate the micro-loan ($1 to $50,000 dollars US) markets, and to a lesser extent simplify the small business lending process ($50,001 to $250,000 dollars US) for micro (under $250,000) business loans
(C) Work with existing regulatory and oversight bodies to ensure consumer protections
(D) Independent oversight to expand recommendations for counsel with various regulatory and economic agencies
Government backing will create a secondary market to resell pools of bonds like Sallie, Freddy and Fannie. In this recommendation, we strongly urge the oversight of regulations and the simplicity and transparency of rules, and suggest this could become a means for clarifying, and making positive change in the bond and securities markets, extant.
Micro-loans, those under fifty-thousand dollars, to individuals, as secured by real property, tangible property, or without security are all considered equivalent in this regard, and refer to those US citizens to whom there is such indebtedness, often above and beyond just this loan amount.
I imagine that if this program and set of reforms were so implemented, by having no required loan minimums, we may expect this provision would create a swarm of micro credit availability and lending programs.
Working in concert with existing laws agencies and institutions, new modified and streamlined rules would allow for a massive wave of refinancing of consumer debt.
In some cases, individual credit may be extended.
This proposal amounts to a non-bankruptcy proposal to the American citizen, and an admission by it’s leaders’ that the economic policies for the last decades have not (i) improved affordability, (ii) fully redressed income or prosperity gaps, nor (iii) have fully redressed income discrimination or dispairities.
Debt is unfortunately inevitable, and we (apparently continue to) follow the example of our leaders.
Peg Two. Consumer Rights, Responsibilities, and Limitations
(A) Interest. Your interest rate may not be usurious. Rates are here proposed to have a regulated minimum of 2.5% and a maximum of 7.5%.
(B) Credit. Your “credit rating” can be calculated by a monkey. Five percentage points between 2.5 and 7.5 percent, create five categories of credit-worthiness:
a. Real Estate Attached and Full Documentation (Only)
b. Tangible Property Attached and Full Documentation
c. Tangible Property Attached and Low Documentation
d. Signature Only and Full Documentation
e. Signature Only and Low Documentation
(C) Limits. Your Loan Limit will be one factor where affordability and litmus tests can come into play. (It’s a government-backed loan, not a guarantee that someone will lend.)
(D) Tax Deduction. Any Interest paid on these loans is a write-off, so long as the item purchased isn’t also being depreciated in the tax year interest is written off.
(E) Business. Aside from a shot in the arm with refreshed credit sources, and credit availability, (S, SE, Sole Proprietorship, and 1099) small businesses and contractors will get an additional allowance of benefit in their own category, and these three elements of credit availability and liquidity combined should act as a serious stimulus for Main Street.
(F) Families. Any individual who claims any (one or more) dependant will automatically qualify for an additional $5000.00 credit limit.
(G) Responsibility. Although any Individual or business may refinance the first amount of debt ant any time, without pre-payment penalties, the debt may only be paid-off, and cannot be discharged through Bankruptcy.
Central Tent Pole. Insurance.
In a counter-balance to the risk of “no BK,” or ‘bankruptcies,’ to the consumer there is, aside from the potential for a secondary market in the government backed securities, another mitigating factor to the macro investors, as well as the creditors themselves.
There needs to be a tent pole in place that assures there is a sound investment proposal, otherwise this becomes a government-propped scheme, as opposed to a government operated trust on behalf of the Consumer.
Although no “insurance requirement” is here recommended to be used as a factor for making any one loan, an “insurance component,” that would be available to be opted in to any loan at any time, and in accordance with Federal and State rules, that allows for the expense of servicing to cover the costs of an insurance premium that benefits the Debt-Holder.
These policies do not have to be that simple, but they should follow some rules of the road, and is here recommended can not add to the expense of having taken the loan.
First off, according to this recommendation, like the loans have no pre-payment penalties, these insurance policies can be bought back by the consumer. After a debt is satisfied, the Debt Holder, must offer the consumer a fair right to redeem the Policy being held on his or her life.
Further, that right (1. to satisfy the debt, and 2. to retain the benefit of policy) is best if it also transfers to one’s legatees, heirs, and/or estate tax free, and no undue delay may be created by the Debt Holder.
Finally, a Debt Holder will be required to follow certain time periods that describe normal and requisite response times from Consumer to retrieve such a benefit.
However, in the event of a default, or the death of any consumer, after following procedure in concert with appropriate notification, waiting and response times, the Debt Holder may be considered in first position to discharge all costs against the benefits of any policy so entrusted, before transferring any fully accounted and audited remainder to the Consumer’s legatees, heirs, and/or estate tax free.
By including this insurance component with the government backed facility, (A) we have a secondary guarantee to have any consumer debt satisfied, (B) we have mitigated risk, so justifying the limits on interest rates and fees.
As Mortgage Insurance does for FHA Loans, so for the Debentures and Debts this private Life insurance market will act to mitigate risks posed by individual Consumers acting as borrowers, and secondarily will have the collective benefit of mitigating risks of recoupment of principle. Overall, this should be very attractive to investors, particularly if these debentures remain dollar denominated.
Peg Three. Resultant Savings.
If any of this remains unclear, for whatever reason, just do some basic research and consumer financial education and find out the difference between a typical credit card loan = a negatively amortized revolving loan with fees and rates between 6.99 and 29.99%, and the proposal here to make a flat rate of forbearable interest, fee restrictions, and a rate range from 2.50 and 7.50%-- this will save the average American family $1152 per year!
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Just three ideas and a comment, from what would certainly be an eventual plethora as a result of these recommendations, of ways to improve the Consumer outcome in dealing with Affordability and Debenture, as a net benefit from these rule ideas, for this peg of the tent that may all be simultaneously executed:
(A) In Loan Work-outs, refinances, and/or other incentivized restructuring programs, a tax-free savings account (under rules similar to the HSAs [see Health Savings Account]) may be set up on behalf of the Consumer as a “Learning to Save,” qualification for any business that would so seek to be qualified. That tax free account would eventually revert to the Consumer, after all debts have been satisfied. Lawyers, insurance Agents, Brokers, as well as Credit Counselors, Not for Profit Debt Agencies, et. al. would be ideal candidates to assist in this program by becoming tested, qualified and bonded as a credentialed, licensed and recognized Trustee.
(B) In consumer credit devices, a similar tax-free savings account (under rules similar to the HSAs) may be set up as an incentive to qualify for lower interest rates (still have to be between 2.5 and 7.5% however), and may also with certain restrictions be set up as an overdraft protection mechanism.
(C) After a debt has been satisfied, any remainder due the consumer, with or without any insurance component(s), may be set into a new or existing tax-free savings account.
(D) Comment: Creditors are here recommended to be fully compliant as Trustees and meet additional requirements to participate in housing the principle sums for individual Consumers' Savings Trusteeship accounts that qualify for the FDIC sponsored savings program(s), preferable to local banks, Credit Unions, and Bonded Agents already insured by FDIC.
Peg Four. Business.
Loan Limits here proposed: for individual are $1 ~ $45,000 and then an additional $5,000 if you claim any dependant.
If you file Jointly, then as a couple your combined maximum limit for tax-deductable interest payments on qualified consumer loans is $90,000 and then an additional $5,000 for your first, and second $5,000 if you claim any dependants numbering 2 or above.
If you file as a Sole Proprietor, SE, S-Corp, or 1099, then under additional rules you may apply for “SBA Rules,” or 51-250K (that’s fifty-one dash two-hundred fifty kay [as in loan limits from $51 ~ 250 thousands]), which only should have in common with SBA Loans (1) they’re for Business Purposes, and (2) the government acts as backer of last resort.
Otherwise, only a Board of Advisors role is recommended by this proposal to be held something like at an annual meeting between this Consumer Loan Program (CLP) and the Small Business Administration to coordinate and harmonize lending rules would seem to be potentially necessary.
Same Interest Rate Limits as the first tent peg.
Same 5 credit categories as the first tent peg.
Same tax deduction, same everything, except (i.) loan limits go higher (up to $250,000), but may be slightly more restrictive, and (ii.) may potentially have pre-payment penalties, or other restrictions.
Cash flow of the business, credit worthiness, and net worth should all come into play, but ideally not be so inflexible as to stifle our nations Entrepreneurs from getting a second, third, or even fourth chance at success, the pursuit of happiness, and creation of Jobs!
Conclusion to this proposal. Imaging Purpose; The Second Tent Pole.
The government must act as debtor of last resort in order to encourage the Lending Institutions, and the Financial Industry in general, to effectuate a new game plan, which better enables and ennobles our American Citizenry—A Right to Life, Liberty, and the Pursuit of Happiness—all three things that Lending can do when capital is properly employed.
This proposal is intended to be tax neutral, and highly stimulative to the economy.
Finally, I suggest a slogan to this Agency, Consumer Loan Program, or what-have you, and it reads simply:
Indifference and Forbearance
To whit a philosophy:
This agency in its oversight shall be indifferent to the “whom,” and focus only on the ‘what and how’ in order to protect the consumer, detect fraud and abuse, and foster equal lending practices at the micro-Business and individual Consumer levels.
The objective of this agency is to promote the free flow of capital investment to the farthest reaches of our economy.
Policy and procedure are the foundation, Rule of Law the building, and the marketplace of American Citizens shall be the people whom would so enjoin to make Consumer Loans.
This agency shall preserve the mission to forbear, for the Government must lead by example, and that purpose is: (i) a tolerant and quiet strength with efficiency in motion, (ii) an unyielding belief in Americans as a group and as individuals, (iii) and straightforwardness of purpose.
To bring to bear the proper practices available to the Consumer on the economy.
And, to create opportunities for the American Citizenry in their pursuits of Life, Liberty and happiness.
Showing posts with label Mortgage Crisis. Show all posts
Showing posts with label Mortgage Crisis. Show all posts
Wednesday, November 3, 2010
Thursday, October 15, 2009
What Made The Greatest Generation Better?
Startling to imagine that the people starting families, going to college and buying homes earned about 59% less than we do for homes that cost 217% less!
So in other words, a male in 1950 (who made a median income of ~$20K) could buy a median home that would cost him three times his gross income (~$55K), and if the female of the nuclear family was also working she could add about $9K p.a. to the kitty-- meaning a joint income family bought homes in the fifties USA for about twice their gross earnings!
If we reverse that using 2008 numbers: Median Wage was ~$32K, so a single earner should be able to buy a home that costs ~$96K...
According to census.gov the wage gap in 2004 was at ~77%, so that means the median female made ~$25K. The joint earners then have a combined ~$57K, and again, reversing the idea, a home should cost ~$106K!
-OR-
Instead of homes costing between $96K and $106K, we could reverse the wage disparity against home costs:
According to realtor.org, the Median price for homes in Dec. 2008 was $175K nationally. Lets not worry that there have been some slight improvements in the market, or how complex the marketplace really is for our purposes here, and agree that indeed $175K is fair (even in NY and CA).
Going back to the 1950's, that would put (male) wage earners at one-third of home price, or ~$58K per year!
If we accommodate the idea that gender equality has somehow had a negative impact (that is to say, lets make pay equal in our assumption, but reduce by a factor of 77% this reverse affordability [$58k * 0.77]), then we still get two earners who each gross just under $45K each!
And this still lags the 1950's statistic (where not making distinctions of male or female) a dual income family would earn ~$97K (an extra $7K).
Thats median, which means the perfect middle of all people, or in the case of property, a middle of the road home-- an imaginary concept. That said if we have only one person at the median, and everyone else is skewered to the furthest reaches (say very rich and very poor) this does little to promote a middle class, which the Greatest Generation also had the benefit of.
"The wealthiest 10 percent of Americans — those making more than $138,000 each year — earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008." (Note: they quote "median income" as '$50,303,' but they mean MEDIAN HOUSEHOLD INCOME!!!)
So the way back to 1950's prosperity? Increase affordability not just for some, but many.
(References: Median Wages and Home Prices, Census.gov; Inflation Adjustment Westegg.com; Chart assumption for 2010 Estimate = [2008 Median Wage according to BLS.GOV = $32,290, but carried ADJUSTED 2000 Median Wage of $36,200 into 2008 value $38,841as parity for estimate of 2010 Median Wage] / [DEC 2008 Median Home Price without adjustment or improvement or decline.].)
Thursday, September 24, 2009
The 10% (of GDP) Solution
[UPDATED (09/25/09)]
We approach one year since the Government of George W. Bush came to the rescue of Profiteers on Wall Street to create systemic reward for failure in our market driven economy.
Yesterday, Rachael Maddow interviewed Paul Krugman, and
In minute five he begins describing the remedies for the current situation and I will be discussing the statements he concludes by about minute six, and among the other interesting points he made he mentioned that in order to get out of the Great Depression we had WWII which required government fiscal input of ~40% of GDP.
He went on to state that the current stimulus is only about 2.5% of GDP.
Now I am not going to spend time checking to see how accurate those numbers are this morning, and I dont agree with everything Krugman says. That disclaimer out of the way, I will say hes probably pretty accurate on those facts, and it is clear (as he also went on to say) that the political fortitude for such a stimulus plan is weak at best (mirroring the point in the one minute clip I could find above).
SO lets take those facts as a rule of thumb. Lets say the economy is twice as efficient now as it was sixty or seventy years ago; Let grant that this Severe Recession isnt exactly the same as the Great Depression (lets say for simplicity its half as bad adding the broader networking of International markets, exchanges, and trade); and we would need about ten percent of GDP in stimulus to really soar past our current problems!
Now lets assume the government has screwed the pooch with Paulson-Cheney's rescue, and that Obama's versions are still too early to call. All that, according to Krugman yesterday is about 4% of GDP (including cash for clunkers, et. al.).
[Lets apply about 1.5% of GDP for Infrastructure improvements, as my memory from first post to this update was off by 1.5%, so that means] we have about another 6% of GDP yet to spend: So thats about $858BB we can still spend.
1. Thats about the estimated cost for the full Health Reform Bill without any efficiency savings
2. My top ten wish list (inclusive of increased infrastructure and health care inclusive of efficiency savings)
or
3. A Citizens Stimulus
Here's the idea: Instead of giving more money to the moneyed interests, give to the citizens! Let's say there are about 200,000,000 individual and family tax payers; There is about $850BB to give for completion of stimulus which is about 1/4th as strong as how we escaped the Great Depression; then we have about $4250 Credit Amount per individual.
A. Order of the Allthing. In Icelandic and Nordic cultures there was the All Thing which basically reconciled all debts every year-- including debt forgiveness. So here would be the thing which I prescribe;
i. First, subtract Federal back taxes and penalties forgiven up to the Credit Amount
ii. Then from that remainder, subtract State back taxes and penalties forgiven up to the Total Credit Amount (This money goes to the States!)
iii. Next from that remainder, subtract local (real estate) tax liens and penalties forgiven up to the Total Credit Amount (This goes to the local governments!!)
iv. Finally, assuming anything is left over, any outstanding judgements, child support, or other unpaid levies would be forgiven up to that Total Credit Amount
B. The way TARP should have been applied.
i. Citizen give government the right to examine credit records (they ostensibly have this data just from Fannie-Freddie)
ii. Government confirms real outstanding balances from an official capacity via subpoena powers (thereby any institution being usurious or illegal would be committing fraud at a Federal level)
iii. Citizen has time to dispute final balances
iv. Creditor has right to re-validate claim(s)
v. Citizen may elect to have any remainder from Allthing process (above) to be applied to some or all participating Creditors to discharge debts in a class manner
C. Citizen may simply bypass this class bailout/credit restoration process and collect remainder form Allthing process.
SO think about this practically! Lets say 33% have something left over and want to participate in this settling of debts. Lets imagine who the money is owed to? In its current configuration (post-bailouts and mergers) something like 90% of all consumer debts are carried by 5 major institutions.
IF we imagine that Citibank (for instance) then recovers something to the tune of 10% of its consumer debt, doesnt that serve the same purpose of stimulus? It also relieves the consumer, and technically allows Citibank to make new loans!
FInally, if all those bailout moneys had been so applied the amount being discussed would be closer to $10K per person, and if we added the idea that mortgages could be included as direct or indirect beneficiaries to the class settlements or the use of funds by individuals who elected to bypass the settlement process some of the foreclosure and real estate market issues would have been rounded out.
You may say I am a dreamer, but I hope someday you will join me...!
We approach one year since the Government of George W. Bush came to the rescue of Profiteers on Wall Street to create systemic reward for failure in our market driven economy.
Yesterday, Rachael Maddow interviewed Paul Krugman, and
Visit msnbc.com for Breaking News, World News, and News about the Economy
In minute five he begins describing the remedies for the current situation and I will be discussing the statements he concludes by about minute six, and among the other interesting points he made he mentioned that in order to get out of the Great Depression we had WWII which required government fiscal input of ~40% of GDP.
He went on to state that the current stimulus is only about 2.5% of GDP.
Now I am not going to spend time checking to see how accurate those numbers are this morning, and I dont agree with everything Krugman says. That disclaimer out of the way, I will say hes probably pretty accurate on those facts, and it is clear (as he also went on to say) that the political fortitude for such a stimulus plan is weak at best (mirroring the point in the one minute clip I could find above).
SO lets take those facts as a rule of thumb. Lets say the economy is twice as efficient now as it was sixty or seventy years ago; Let grant that this Severe Recession isnt exactly the same as the Great Depression (lets say for simplicity its half as bad adding the broader networking of International markets, exchanges, and trade); and we would need about ten percent of GDP in stimulus to really soar past our current problems!
Now lets assume the government has screwed the pooch with Paulson-Cheney's rescue, and that Obama's versions are still too early to call. All that, according to Krugman yesterday is about 4% of GDP (including cash for clunkers, et. al.).
[Lets apply about 1.5% of GDP for Infrastructure improvements, as my memory from first post to this update was off by 1.5%, so that means] we have about another 6% of GDP yet to spend: So thats about $858BB we can still spend.
1. Thats about the estimated cost for the full Health Reform Bill without any efficiency savings
2. My top ten wish list (inclusive of increased infrastructure and health care inclusive of efficiency savings)
or
3. A Citizens Stimulus
Here's the idea: Instead of giving more money to the moneyed interests, give to the citizens! Let's say there are about 200,000,000 individual and family tax payers; There is about $850BB to give for completion of stimulus which is about 1/4th as strong as how we escaped the Great Depression; then we have about $4250 Credit Amount per individual.
A. Order of the Allthing. In Icelandic and Nordic cultures there was the All Thing which basically reconciled all debts every year-- including debt forgiveness. So here would be the thing which I prescribe;
i. First, subtract Federal back taxes and penalties forgiven up to the Credit Amount
ii. Then from that remainder, subtract State back taxes and penalties forgiven up to the Total Credit Amount (This money goes to the States!)
iii. Next from that remainder, subtract local (real estate) tax liens and penalties forgiven up to the Total Credit Amount (This goes to the local governments!!)
iv. Finally, assuming anything is left over, any outstanding judgements, child support, or other unpaid levies would be forgiven up to that Total Credit Amount
B. The way TARP should have been applied.
i. Citizen give government the right to examine credit records (they ostensibly have this data just from Fannie-Freddie)
ii. Government confirms real outstanding balances from an official capacity via subpoena powers (thereby any institution being usurious or illegal would be committing fraud at a Federal level)
iii. Citizen has time to dispute final balances
iv. Creditor has right to re-validate claim(s)
v. Citizen may elect to have any remainder from Allthing process (above) to be applied to some or all participating Creditors to discharge debts in a class manner
C. Citizen may simply bypass this class bailout/credit restoration process and collect remainder form Allthing process.
SO think about this practically! Lets say 33% have something left over and want to participate in this settling of debts. Lets imagine who the money is owed to? In its current configuration (post-bailouts and mergers) something like 90% of all consumer debts are carried by 5 major institutions.
IF we imagine that Citibank (for instance) then recovers something to the tune of 10% of its consumer debt, doesnt that serve the same purpose of stimulus? It also relieves the consumer, and technically allows Citibank to make new loans!
FInally, if all those bailout moneys had been so applied the amount being discussed would be closer to $10K per person, and if we added the idea that mortgages could be included as direct or indirect beneficiaries to the class settlements or the use of funds by individuals who elected to bypass the settlement process some of the foreclosure and real estate market issues would have been rounded out.
You may say I am a dreamer, but I hope someday you will join me...!
Sunday, February 15, 2009
Update
So I haven't been anywhere in Cyberspace for well over a month... I barely had time and energy to make that little quip about Cheney.
Reason why: I have completed the first draft and first edit of a two hundred (or so) page book on Macro Economics.
The book is meant to be readable and modestly entertaining, but in fact is an exposition in Philosophical thought on economics which allows the reader to follow an argument I have been thinking for over twenty years now, but had allowed myself to be convinced by the "trickle-downers" that theirs was a system that worked.
Well that horse has left the barn, and the fly in the ointment is a obvious as the emperors new clothes. Sorry, had to puke out a couple of over used cliches, which I tried to avoid in the book, with the exception of two, for which I directly apologize to the reader having (in less than one months writing) only come up with those relatively apt descriptions to hasten the readability.
I would have loved to spend ten years instead writing some needlessly complex book which makes obscure and practical example of the thought so espoused in this work, but morally I felt the compuncture to instead make an effort to shift the dialogue we are presently trapped in with our current economic state of affairs.
All that said, I am hanging in there, wish you all the best, and hope to publish the book as a final draft by March.
Reason why: I have completed the first draft and first edit of a two hundred (or so) page book on Macro Economics.
The book is meant to be readable and modestly entertaining, but in fact is an exposition in Philosophical thought on economics which allows the reader to follow an argument I have been thinking for over twenty years now, but had allowed myself to be convinced by the "trickle-downers" that theirs was a system that worked.
Well that horse has left the barn, and the fly in the ointment is a obvious as the emperors new clothes. Sorry, had to puke out a couple of over used cliches, which I tried to avoid in the book, with the exception of two, for which I directly apologize to the reader having (in less than one months writing) only come up with those relatively apt descriptions to hasten the readability.
I would have loved to spend ten years instead writing some needlessly complex book which makes obscure and practical example of the thought so espoused in this work, but morally I felt the compuncture to instead make an effort to shift the dialogue we are presently trapped in with our current economic state of affairs.
All that said, I am hanging in there, wish you all the best, and hope to publish the book as a final draft by March.
Wednesday, December 31, 2008
Why the Republicans are "Communists"
Lets start off by defining communism via copying from Wikipedia;
"Communism is a socioeconomic structure and political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general."
That very good sentence is not what I mean by referring to the "W" administration as Communist.
Lets shade things in a little:
When I was growing up you were a Pinko, Commie, or as Wally George would say, "Looney Liberal" if you disagreed with trickle down economics.
Aside from Appeal to the Masses approach of name calling, why would I conclude that the label of Communist, as the many Republicanistas I have known over the many decades, would call someone, group, or argument which believed in any hint of the socialist concept of nationalization of wealth, be an appropriate adjective for the Republicans?
Lets construct the argument from the Republicans and their Administration.
(1) Paulson hands in a three page proposal to solicit $750BB by using an Appeal to Fear.
(2) The congress, after some questioning, submits to this request without examining the construct of mechanisms of oversight, re-regulation, or sufficient scientific or public input by certifying the Appeal to Fear and also using an Appeal to Consequences.
(3) Paulson in turn has "bailed out" only the richest and most influential corporations without any calculation towards restoring the credit markets. In doing this he acting as proxy for the "W" Administration has nationalized more dollar for dollar (adjusted) private wealth than did Lenin in the 1917 Russian Revolution.
The main difference between the almost 90 years and two continents? Lenin nationalized means of production, and Paulson/Bush have nationalized private failures.
As sickening as that statement is alone, it in my opinion gets worse.
(4) Now it also turns out that the execs and other elite do not have to take any pay cut for their failures.
The primary argument from all the trickle downers was that through facilitating the elites, you create more jobs, and thus have a social hierarchy which is a form of meritocracy. Often the arguments from those same trickle downers was that to have a state mechanism which takes care of less fortunate, say war veterans or people with disabilities, would reward failure, incompetence, or lacksadaisy. Can you see where I am going on this one?
The beneficiaries of the decades of pro-corporation, deregulatory, and trickle down thinking has been turned on its head by those very same people who would have argued (in the face of say a $700BB package to allow individuals who earn less than $50K per annum to write down their losses [not pay taxes], be reimbursed for incompetence, and be availed of debts incurred from their poor decisions by the US government) against such a blatant avoidance of capitalist consequences.
Those who would argue that somehow the Clinton years were not in this bag of hammers are dead wrong. Clinton worked with the Knut Gingrich congress to get those lazy welfare mothers back to work, for instance. Only Jimmy Carter tried to oppose the Nixonian economic dismantling of the Great Society and the New Deal-- and he was absolutely punished (for not doing a very good job of trying to swim against the current).
So, was Paulson's appeal true or false? Probably a little of both. Yes, the sky was falling, but not in the way anyone could comprehend-- or at least anyone who truly comprehended this did not say. (On a separate note, how convenient is it of the anti-government Republicans to not only have built the largest American bureaucracy in history, but to have also spared us poor innocent citizens from the awful and complex truth involved in the facts {thus a defacto Nanny State mentality, to boot}?)
So, was Congress reasonable or irrational to take such drastic action? Probably a bit of both. On the one hand to it was fairly unpopular (especially at first blush), but to have gone into lame duck session without action could have been political poison for reelection.
So will the companies chosen to be bailed out be a good or poor move by the collective US Government? Probably a bit of both, again: On the one hand if we are truly getting preferred stock interest, corporate bonds, and other repayment guarantees, then there is a real probability (say 30 ~ 55% chance) that the US government (and hence the taxpayer) will come out ahead in dollar for dollar inflation adjusted numbers at the end of two or three decades. On the other hand it is in my estimation also a fair probability that dollar for dollar we could come out behind.
Effectively the US Government will have to now manage a portfolio. On the other hand, it will control certain of these groups (like Fannie-Freddie). All the while being the regulator for these corporations! This is a Corporatist Socialism model which in large part has been the fantasy of many of the Pro-Business "Libertarians" I have read.
They showed Soylent Green on TV yesterday, and that is taking the overreach and complicit conspiracy between corporation and government to a natural and far reaching (if not simplistic) conclusion.
My recommendations for the new administration:
(a) Re-enforce various merit based pay systems/anti-golden parachute provisions for these loans, or they will become due. The Republicans (and many Dems) are fond these days of talking about mortgages and other legal devices as if these are mutable documents. The basis of law is the immutable nature of such binding agreements in writing and witnessed. If there is going to be any flexibility in interpreting legal agreements lets start with the fact that the intention of the parties was NO GOLDEN PARACHUTES!
(b) Envigorate and expand regulatory mechanisms. Further this by making public oversight commissions to review this triangle between the US Government as Stock/Bond holder, US Government as regulator and enforcer of laws, and as shepherd of tax dollars thus invested. (Think Customer, Regulator, and Broker-- of which US Govt is now all three.)
(c) Create new rules for this new use of tax dollars to further discourage cronyism, quid pro quo, and other unsavory action which could clearly emerge over time from this unholy trinity by creating trust fund and anti-collusion rules for the US Government as Broker.
(d) Create timelines (not in terms of time, rather in terms of event mile markers) which delineate the divestment of these holdings (as Customer).
(e) Enforce the bloody rules that are on the books! And simplify them so that even the company Receptionist could theoretically blow the whistle upon detecting malfeasance or felonious behaviour!!
So now I am going back in time, to 1987, Reagan is President, and I am going to visit Wally George and be on the lame-ass Hot Seat show to say, "We need to infuse business with $700BB in order to allow them to avoid losses, keep their jobs, and 'stimulate the economy.' I believe the government should become three times bigger than it is today. I think it will be good for us to avoid confusing our consumers, I mean citizens, with any real information or data germane to the decision making processes, because politicians know best. And then I believe as regulator, primary stock holder, and investor the US Government shouldn't be burdened by little details like accounting for how those funds are used by the corporations we deign to be worthy of state investments!"
Commie!
"Communism is a socioeconomic structure and political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general."
That very good sentence is not what I mean by referring to the "W" administration as Communist.
Lets shade things in a little:
When I was growing up you were a Pinko, Commie, or as Wally George would say, "Looney Liberal" if you disagreed with trickle down economics.
Aside from Appeal to the Masses approach of name calling, why would I conclude that the label of Communist, as the many Republicanistas I have known over the many decades, would call someone, group, or argument which believed in any hint of the socialist concept of nationalization of wealth, be an appropriate adjective for the Republicans?
Lets construct the argument from the Republicans and their Administration.
(1) Paulson hands in a three page proposal to solicit $750BB by using an Appeal to Fear.
(2) The congress, after some questioning, submits to this request without examining the construct of mechanisms of oversight, re-regulation, or sufficient scientific or public input by certifying the Appeal to Fear and also using an Appeal to Consequences.
(3) Paulson in turn has "bailed out" only the richest and most influential corporations without any calculation towards restoring the credit markets. In doing this he acting as proxy for the "W" Administration has nationalized more dollar for dollar (adjusted) private wealth than did Lenin in the 1917 Russian Revolution.
The main difference between the almost 90 years and two continents? Lenin nationalized means of production, and Paulson/Bush have nationalized private failures.
As sickening as that statement is alone, it in my opinion gets worse.
(4) Now it also turns out that the execs and other elite do not have to take any pay cut for their failures.
The primary argument from all the trickle downers was that through facilitating the elites, you create more jobs, and thus have a social hierarchy which is a form of meritocracy. Often the arguments from those same trickle downers was that to have a state mechanism which takes care of less fortunate, say war veterans or people with disabilities, would reward failure, incompetence, or lacksadaisy. Can you see where I am going on this one?
The beneficiaries of the decades of pro-corporation, deregulatory, and trickle down thinking has been turned on its head by those very same people who would have argued (in the face of say a $700BB package to allow individuals who earn less than $50K per annum to write down their losses [not pay taxes], be reimbursed for incompetence, and be availed of debts incurred from their poor decisions by the US government) against such a blatant avoidance of capitalist consequences.
Those who would argue that somehow the Clinton years were not in this bag of hammers are dead wrong. Clinton worked with the Knut Gingrich congress to get those lazy welfare mothers back to work, for instance. Only Jimmy Carter tried to oppose the Nixonian economic dismantling of the Great Society and the New Deal-- and he was absolutely punished (for not doing a very good job of trying to swim against the current).
So, was Paulson's appeal true or false? Probably a little of both. Yes, the sky was falling, but not in the way anyone could comprehend-- or at least anyone who truly comprehended this did not say. (On a separate note, how convenient is it of the anti-government Republicans to not only have built the largest American bureaucracy in history, but to have also spared us poor innocent citizens from the awful and complex truth involved in the facts {thus a defacto Nanny State mentality, to boot}?)
So, was Congress reasonable or irrational to take such drastic action? Probably a bit of both. On the one hand to it was fairly unpopular (especially at first blush), but to have gone into lame duck session without action could have been political poison for reelection.
So will the companies chosen to be bailed out be a good or poor move by the collective US Government? Probably a bit of both, again: On the one hand if we are truly getting preferred stock interest, corporate bonds, and other repayment guarantees, then there is a real probability (say 30 ~ 55% chance) that the US government (and hence the taxpayer) will come out ahead in dollar for dollar inflation adjusted numbers at the end of two or three decades. On the other hand it is in my estimation also a fair probability that dollar for dollar we could come out behind.
Effectively the US Government will have to now manage a portfolio. On the other hand, it will control certain of these groups (like Fannie-Freddie). All the while being the regulator for these corporations! This is a Corporatist Socialism model which in large part has been the fantasy of many of the Pro-Business "Libertarians" I have read.
They showed Soylent Green on TV yesterday, and that is taking the overreach and complicit conspiracy between corporation and government to a natural and far reaching (if not simplistic) conclusion.
My recommendations for the new administration:
(a) Re-enforce various merit based pay systems/anti-golden parachute provisions for these loans, or they will become due. The Republicans (and many Dems) are fond these days of talking about mortgages and other legal devices as if these are mutable documents. The basis of law is the immutable nature of such binding agreements in writing and witnessed. If there is going to be any flexibility in interpreting legal agreements lets start with the fact that the intention of the parties was NO GOLDEN PARACHUTES!
(b) Envigorate and expand regulatory mechanisms. Further this by making public oversight commissions to review this triangle between the US Government as Stock/Bond holder, US Government as regulator and enforcer of laws, and as shepherd of tax dollars thus invested. (Think Customer, Regulator, and Broker-- of which US Govt is now all three.)
(c) Create new rules for this new use of tax dollars to further discourage cronyism, quid pro quo, and other unsavory action which could clearly emerge over time from this unholy trinity by creating trust fund and anti-collusion rules for the US Government as Broker.
(d) Create timelines (not in terms of time, rather in terms of event mile markers) which delineate the divestment of these holdings (as Customer).
(e) Enforce the bloody rules that are on the books! And simplify them so that even the company Receptionist could theoretically blow the whistle upon detecting malfeasance or felonious behaviour!!
So now I am going back in time, to 1987, Reagan is President, and I am going to visit Wally George and be on the lame-ass Hot Seat show to say, "We need to infuse business with $700BB in order to allow them to avoid losses, keep their jobs, and 'stimulate the economy.' I believe the government should become three times bigger than it is today. I think it will be good for us to avoid confusing our consumers, I mean citizens, with any real information or data germane to the decision making processes, because politicians know best. And then I believe as regulator, primary stock holder, and investor the US Government shouldn't be burdened by little details like accounting for how those funds are used by the corporations we deign to be worthy of state investments!"
Commie!
Wednesday, November 26, 2008
Mortgage Madness
You gotta love the old commercials from the local (appliance, auto, carpet) guy where he says, "I'm going crazy."
Pitch lines then vary for instance, "until Sunday at Noon;" or "with prices like these...;" or "always and forever, so stop in anytime and I will make you a heckuva deal."
The point was (as I havent seen "that guy" for a long while) that the owner was irrationally trying to reduce stocks or inventory, and/or needed to pay for his divorce, expansion, or next years order.
Thats capitalism.
Crazy Guy, then either procured enough customers with enough profit margin and cost recoupment to justify another year in business, or he went out of business. Simple enough, which was why Crazy Guy would occasionally (or in the case of a really poor business model, regularly) reach out to his local TV Market and plead for assistance in the form of mutual benefit-- he took a loss so you could help him keep his lease (or whatever).
So where is this commercial:
At ABC Mortgage, our Sales manager has absolutely gone apeshit with this Financial crisis, and, not to talk out of school, but on top of all that his wife and his girlfriend are suing him-- right when the Federal government has specified NO MORE GOLDEN PARACHUTES!
His loss is your gain, we are renegotiating all of our current mortgages, and selling up to meet volume for the first two hundred customers (limit one mortgage per customer, some customers will not qualify).
But hurry, his divorce finalizes next Friday, and if we dont firm up our balance sheets to meet Sarbanes-Oxley-- he's fired!
So, come on down to ABC Mortgage and get you a 5% mortgage amortized over 40 years! Who said you couldn't afford that house?
And there you are. No CITI or AIG bailouts... pure capitalism. Oh, wait, I am dreaming again... sorry.
First problem is that brokers only arrange mortgages for banks/lenders, who then sell mortgages to servicing agencies, and once those are seasoned (paid on regularly for 30 ~ 120 days) they are then packaged and sold to the "Secondary Market," which means Fannie-Freddie (whom by now you have all met, and now as taxpayers own). Lets stop there, even though there were then from those secondary mortgage packages a variety of collateralized debt obligations which hypothecated the real (or implied) values of those packages.
Next problem is that Crazy guy from ABC Mortgage, aside from only being an arranger (still remember that guy in So Cal, "The Loan Arranger" for auto finance) 99% of the time, has no more inventory. There is a credit freeze like, literally, no one's business.
Finally, ABC Mortgage, probably did go out of business, and not the Servicing company or Lender (such to say that Countrywide the #1 mortgage company was bought by B of A for a song, and hence still exists).
So, before I complain about how Republicans are Communists (as I expect to do so in a future blog), lets just cut to the number one simplest and most effective way to sort the mortgage mess in short order (as I had promised to write this solution a while ago):
Extend amortization.
Before I go into the maths, let me just state that for the borrower the principal stays the same and it will take longer to pay off the mortgage; for the servicer no long term loss (possibly even more profit over time); the Lender must keep the liability on the books longer, reduce cash flow; and for the secondary market only reduction in cash flow operations. There would only be minor modification of existing contracts (as opposed to major overhauls on a case by case basis). And as for our friends in the "tertiary" markets, the CDO's and derivatives, principal is maintained, defaults mitigated, and only cash flows reduced. Everyone loses just a little bit, but everyone also wins: Borrower gets lower payment and keeps house; Servicer makes more money over time; Lender keeps principal in tact; and so do the secondary and tertiary markets.
The eloquence of this solution is best revealed exactly as it relates to the derivatives. A simple "pick-a-workout" could be sent to all Borrowers in any one CDO class. The post card size item, or letter, would simply show four options including payment adjustments:
1. Keep your mortgage as-is (including disclosures and updates in adjustment estimates as average or worst case)
2. Re-Amortize to 30 years (in other words if you have been paying for x years on a mortgage you extend the mortgage by x years)
3. Re-Amortize to 40 years
4. Re-Amortize for 50 years
NO PRODUCT CHANGES, No messy paperwork, no complex negotiations, and none of this victim stuff. What I mean by that last comment is (a) the people who barely pay on time and can hardly afford the mortgages are much of the focus of the attention {this is why they called it the "sub-prime" crisis, but this has always been the 'secondary market situation'}, but (b) the other 92% of mortgages in the class being paid on time are not benefiting nor being assisted or relieved. The message = Dont pay your mortgage, lose your job, and plead hardship to get a 4% loan.
This current predicament of one-at-a-timing it, then freezes the Secondary market (existing packages are totally kaddywampus right now) and disallows the resale to derivative products.
However if the class (anyone with a mortgage that has been bundled in any particular derivative) is generally offered an amortization extension OPT-IN to be selected by some certain date (say 90 days plus 30 days grace), then that class of mortgages in the CDO (for instance) will be harmonized, not considered "toxic," and that same amount of liquidity would re-enter the Secondary Market by virtue of that Tertiary market buying that package of value (in four months to complete the example).
Thus under my "Class Reset" theory we could be out of this mess in six to nine months.
Here is a simplification of what the offer would look like to a homeowner in year two of a 3 year adjustable $365,000 mortgage LIBOR+3.25% (subprime):
(A) No Change (your payment will adjust in a year... other information)
(B) Your monthly payment will be: $2,188.36
(C) Your monthly payment will be: $2,008.28
(D) Your monthly payment will be: $1,921.38
****
And what if after all of this someone in hardship picks (D), and still cant keep up with the mortgage or refinance? Well ideally the borrower can THEN call the Lender to work out extraordinary arrangements or a forebearance. If after all efforts have been exhausted in earnest and good faith efforts, then in capitalism the property is foreclosed... No risk, no reward. And (Sorry, but I have to throw this one in here) to those punters at the borses who have whinged so endlessly as to become communists-- Dont place the bet if you cant afford to lose!
But we are not capitalists anymore, are we?
Pitch lines then vary for instance, "until Sunday at Noon;" or "with prices like these...;" or "always and forever, so stop in anytime and I will make you a heckuva deal."
The point was (as I havent seen "that guy" for a long while) that the owner was irrationally trying to reduce stocks or inventory, and/or needed to pay for his divorce, expansion, or next years order.
Thats capitalism.
Crazy Guy, then either procured enough customers with enough profit margin and cost recoupment to justify another year in business, or he went out of business. Simple enough, which was why Crazy Guy would occasionally (or in the case of a really poor business model, regularly) reach out to his local TV Market and plead for assistance in the form of mutual benefit-- he took a loss so you could help him keep his lease (or whatever).
So where is this commercial:
At ABC Mortgage, our Sales manager has absolutely gone apeshit with this Financial crisis, and, not to talk out of school, but on top of all that his wife and his girlfriend are suing him-- right when the Federal government has specified NO MORE GOLDEN PARACHUTES!
His loss is your gain, we are renegotiating all of our current mortgages, and selling up to meet volume for the first two hundred customers (limit one mortgage per customer, some customers will not qualify).
But hurry, his divorce finalizes next Friday, and if we dont firm up our balance sheets to meet Sarbanes-Oxley-- he's fired!
So, come on down to ABC Mortgage and get you a 5% mortgage amortized over 40 years! Who said you couldn't afford that house?
And there you are. No CITI or AIG bailouts... pure capitalism. Oh, wait, I am dreaming again... sorry.
First problem is that brokers only arrange mortgages for banks/lenders, who then sell mortgages to servicing agencies, and once those are seasoned (paid on regularly for 30 ~ 120 days) they are then packaged and sold to the "Secondary Market," which means Fannie-Freddie (whom by now you have all met, and now as taxpayers own). Lets stop there, even though there were then from those secondary mortgage packages a variety of collateralized debt obligations which hypothecated the real (or implied) values of those packages.
Next problem is that Crazy guy from ABC Mortgage, aside from only being an arranger (still remember that guy in So Cal, "The Loan Arranger" for auto finance) 99% of the time, has no more inventory. There is a credit freeze like, literally, no one's business.
Finally, ABC Mortgage, probably did go out of business, and not the Servicing company or Lender (such to say that Countrywide the #1 mortgage company was bought by B of A for a song, and hence still exists).
So, before I complain about how Republicans are Communists (as I expect to do so in a future blog), lets just cut to the number one simplest and most effective way to sort the mortgage mess in short order (as I had promised to write this solution a while ago):
Extend amortization.
Before I go into the maths, let me just state that for the borrower the principal stays the same and it will take longer to pay off the mortgage; for the servicer no long term loss (possibly even more profit over time); the Lender must keep the liability on the books longer, reduce cash flow; and for the secondary market only reduction in cash flow operations. There would only be minor modification of existing contracts (as opposed to major overhauls on a case by case basis). And as for our friends in the "tertiary" markets, the CDO's and derivatives, principal is maintained, defaults mitigated, and only cash flows reduced. Everyone loses just a little bit, but everyone also wins: Borrower gets lower payment and keeps house; Servicer makes more money over time; Lender keeps principal in tact; and so do the secondary and tertiary markets.
The eloquence of this solution is best revealed exactly as it relates to the derivatives. A simple "pick-a-workout" could be sent to all Borrowers in any one CDO class. The post card size item, or letter, would simply show four options including payment adjustments:
1. Keep your mortgage as-is (including disclosures and updates in adjustment estimates as average or worst case)
2. Re-Amortize to 30 years (in other words if you have been paying for x years on a mortgage you extend the mortgage by x years)
3. Re-Amortize to 40 years
4. Re-Amortize for 50 years
NO PRODUCT CHANGES, No messy paperwork, no complex negotiations, and none of this victim stuff. What I mean by that last comment is (a) the people who barely pay on time and can hardly afford the mortgages are much of the focus of the attention {this is why they called it the "sub-prime" crisis, but this has always been the 'secondary market situation'}, but (b) the other 92% of mortgages in the class being paid on time are not benefiting nor being assisted or relieved. The message = Dont pay your mortgage, lose your job, and plead hardship to get a 4% loan.
This current predicament of one-at-a-timing it, then freezes the Secondary market (existing packages are totally kaddywampus right now) and disallows the resale to derivative products.
However if the class (anyone with a mortgage that has been bundled in any particular derivative) is generally offered an amortization extension OPT-IN to be selected by some certain date (say 90 days plus 30 days grace), then that class of mortgages in the CDO (for instance) will be harmonized, not considered "toxic," and that same amount of liquidity would re-enter the Secondary Market by virtue of that Tertiary market buying that package of value (in four months to complete the example).
Thus under my "Class Reset" theory we could be out of this mess in six to nine months.
Here is a simplification of what the offer would look like to a homeowner in year two of a 3 year adjustable $365,000 mortgage LIBOR+3.25% (subprime):
(A) No Change (your payment will adjust in a year... other information)
(B) Your monthly payment will be: $2,188.36
(C) Your monthly payment will be: $2,008.28
(D) Your monthly payment will be: $1,921.38
****
And what if after all of this someone in hardship picks (D), and still cant keep up with the mortgage or refinance? Well ideally the borrower can THEN call the Lender to work out extraordinary arrangements or a forebearance. If after all efforts have been exhausted in earnest and good faith efforts, then in capitalism the property is foreclosed... No risk, no reward. And (Sorry, but I have to throw this one in here) to those punters at the borses who have whinged so endlessly as to become communists-- Dont place the bet if you cant afford to lose!
But we are not capitalists anymore, are we?
Friday, November 7, 2008
Memo from the Peanut Gallery to President Elect Obama's Economic Team
There are a multitude of complex issues to grapple with which separate and as a whole are unprecedented.
Great minds and scholars have been hard pressed for solid answers amidst the crisis.
So the few relevant words from a man who has barely cobbled a career from giving advice on real estate, mortgages, and finance is probably pretty low on any priority list, let alone item on the agenda.
Yet here in my own fantasy world known as my blog, I first have to point out this item from June 26th, which clearly defines some of the precipitous issues as it relates to market speculation and its forthcoming consequences as warned in other articles.
Next I would like to point out this article/commentary from 2007 which illustrates clearly the point of view of a humble and honest broker well before the Fannie-Freddy debacle.
And as this is my first commentary on economics and policy since the events of September 15th (a day which will live in infamy), please let me first make plain my assessment of the outgoing W administration, and secondarily the up shot of the Republican's as leadership:
1. The Soviet Union was founded upon less of a Nationalization of private wealth than as what has occurred in the "bailout" package.
2. Unlike the Soviets overtaking means for Production, this is similar to the mulligan that Enron took (Bankruptcy protection) after siphoning off billions of dollars from consumers and state purchasers (notably California).
3. If I was to make the argument that the solution(s) posited by the W administration's Paulson to Republican/Conservative people any time in my life starting in 1970 through to the "Bail out package," I would be considered a 'Commie,' 'Pinko,' or at best 'Looney Liberal.' Luckily I dont believe this is the best solution, although a necessary minimum of confidence was restored to the capital markets.
4. Although anti-free marketers are quick to assert this is proof that its a failure of free market concepts, unfortunately its not quite that simple. True free market principles would then suggest that we allow Wall Street to shatter into a million pieces, and allow the Phoenix of the Invisible Hand to rise from those ashes. The risk of Anarchy, Revolution, and War should not be a hinderance to those stoutest in defense of these principlea.
Rather what has happened is that the curtain has been unveiled upon the Wizard of Oz. Or more accurately Wizards: Power Elite; Ultra Rich; Super Rich; and their operatives... and as Gomer Pyle would say, "Sooprize sooprize," the W administration fits neatly into that last category (if not others).
The doctrine known as "free market," and, often as not, ascribed to as "trickle down," has been a fallacy waiting to happen since I took Economics in 1986 from my perspective. The fallacy is that the pitch (or soccer field to define the metaphor more readily) is absolutely not level (a lack of transparency of markets, trades, and companies-- let alone parity amongst status of trading parties), everyone knows this, but the referees (power elite) assure us that indeed the market is trading at a free clip, and they are doing their best to weed out the inept and destructive government (singular as in government is bad) in order to get back to those players to whom that unfair pitch advantage works against.
It is, like many convincing fallacies, a perfect ecosystem of utter nonsense.
What was revealed when the Wizard came out from behind the curtain?
The rules of the road were designed to insulate power elites from those market forces that every small business owner (not suckling directly from the teat of one or more of the power elite) faces yearly, monthly, daily, hourly, and even at a moment by moment level, wherein one bad decision can have the whole house of cards tumble down on them, their employees, and their families.
Perfect capitalism for 96% of the business owners in America, and pure communism for the ~4% that retain ~92% of the wealth and direction of capital.
The main difference here? That fallacy of "perfect" and "free" markets has been unmasked. For me it doenst make me less of a Keynesian or Miltonian (of which I am only some part in either case), rather confirms the sound logic of truth found within the mathematical models.
For all practical reasons, it wasnt the theories that were flawed, rather the implementation of those theories. You dont go golfing with Tiger Woods, and on holes 3, 7, and 12 receive a "0" on your score (an impossibility), then go on to say you bested Tiger Woods at Augusta for the Championship!
For lack of a simpler explanation that is what Corporate America has been doing for decades!
My Miltonian Tax suggestion of reducing tax paperwork to the size of a postcard, is premised on the fact that massive corporations with armies of lawyers can end up getting paid by the government, whereas the business owner will typically pay between 12 and 44% of GROSS EARNINGS in a profitable year to the Government!
LEVEL THE PLAYING FIELD, PLEASE!!!
So, what are my suggestions?
A. Simple, Fair, and Flat Tax for individuals, businesses, and everyone and everything in between. I think if you make annually inflation adjusted exemption provisions for the first $22K individually, $38K jointly, $6K per child, and $40K for business plus $6K per employee, then a 13% flat across the board on first moneys and profits tax should suffice to amply maintain the Federal treasury. Double tax only counts in certain specific cases, but honestly the concept of a "double tax" is in itself a product of the Labyrinthine tax laws themselves. Simple, plain, and honest: You earn money, invest it and make more... you are taxed on the money you earn. So called "death" tax is a myth, and any exemption should be put onto a matrix which allows for inflation and number of legatees, but otherwise massive fortunes do need to have the same 13% (a lowering of current complex statues) flat tax after expemptions upon transfer of estate.
B. All regulation needs to be put into Plain English. There needs to be a rule book for all people that everyone who speaks a 7th grade level of English can understand, but moreover, each field of employ and oversight needs a smaller and comprehensive annual rule book for the relevant profession(s). If you are a Stock Broker, for instance, the SEC needs to publish a Plain English Guide to all relevant laws (including definitions of crime and punishment) which is the basis for testing and licensure. How do we expect companies to follow laws their people couldnt understand without a law degree? This will facilitate whistleblowing, self governance, and enforcement. (On that note free markets if given clear straight, and bright lines do have the ability to self govern.)
C. International Harmonization. Its well time to beat our swords into plowshares. NATO can also be an economic body which assists in (a la Bretton-Woods) harmonizing economic functions. Why limit it to NATO? Trade Areas can work, and do work. However, just as we need to (for lack of a better word) admit that NATO is also an economic force, we also need to create Fair Standards in order to proceed honestly with our Trading Partners-- applying that standard basket of goods (environment, civil rights, and labor standards) as a preset disposition for negotiations. If any free trading regions partners can all agree to certain basic workers rights, then there is no price advantage to using slave or child labor in order to queer the productivity quotients and balances. This esoteric set of ideas (which I have simply called Fair Standards) is the nutshell of why we have lost so many jobs over seas-- not just "tax advantages" as certain groups would have you believe.
D. Mortgage Relief. I will be writing a more defined explanation of this soon, but here it is in the nutshell version. There are many of the steps necessary to implement a comprehensive relief in place under the current "bailout" plans passed, but my addition would be EVERYONE NEEDS TO FEEL SOME OF THE PAIN. Borrowers should still be on the hook for the full amount of the mortgage when enjoying payment reduction, Lenders should be on the hook to not get their money back in time, and all the middlemen, servicing agencies, and investors need to accept such bi-lateral intervention (as negotiated in mathematical formulation by the FFT [Fannie-Freddy-Treasury] guidelines and agents) regardless of how much money they stand to lose-- BECAUSE THEY ARE JUST MIDDLEMEN! Investors, sorry, but tough turkeys, you put money on those bets, were told the money was at risk, otherwise the SEC and FBI can arrest the brokers for non-disclosure... that said I think most licensees put investment disclosures on their business cards (a financial industry joke). The Government should tread very lightly in using its power to "renegotiate" existing agreements, and that said it is the Lenders right to refuse a renegotiation and foreclose... otherwise we strip Rule of Law (and contracts).
E. Stimulus. See my article on what we can do with the money we save by ending the War. more... more....
Just my two cents.... you can pay me later.
Great minds and scholars have been hard pressed for solid answers amidst the crisis.
So the few relevant words from a man who has barely cobbled a career from giving advice on real estate, mortgages, and finance is probably pretty low on any priority list, let alone item on the agenda.
Yet here in my own fantasy world known as my blog, I first have to point out this item from June 26th, which clearly defines some of the precipitous issues as it relates to market speculation and its forthcoming consequences as warned in other articles.
Next I would like to point out this article/commentary from 2007 which illustrates clearly the point of view of a humble and honest broker well before the Fannie-Freddy debacle.
And as this is my first commentary on economics and policy since the events of September 15th (a day which will live in infamy), please let me first make plain my assessment of the outgoing W administration, and secondarily the up shot of the Republican's as leadership:
1. The Soviet Union was founded upon less of a Nationalization of private wealth than as what has occurred in the "bailout" package.
2. Unlike the Soviets overtaking means for Production, this is similar to the mulligan that Enron took (Bankruptcy protection) after siphoning off billions of dollars from consumers and state purchasers (notably California).
3. If I was to make the argument that the solution(s) posited by the W administration's Paulson to Republican/Conservative people any time in my life starting in 1970 through to the "Bail out package," I would be considered a 'Commie,' 'Pinko,' or at best 'Looney Liberal.' Luckily I dont believe this is the best solution, although a necessary minimum of confidence was restored to the capital markets.
4. Although anti-free marketers are quick to assert this is proof that its a failure of free market concepts, unfortunately its not quite that simple. True free market principles would then suggest that we allow Wall Street to shatter into a million pieces, and allow the Phoenix of the Invisible Hand to rise from those ashes. The risk of Anarchy, Revolution, and War should not be a hinderance to those stoutest in defense of these principlea.
Rather what has happened is that the curtain has been unveiled upon the Wizard of Oz. Or more accurately Wizards: Power Elite; Ultra Rich; Super Rich; and their operatives... and as Gomer Pyle would say, "Sooprize sooprize," the W administration fits neatly into that last category (if not others).
The doctrine known as "free market," and, often as not, ascribed to as "trickle down," has been a fallacy waiting to happen since I took Economics in 1986 from my perspective. The fallacy is that the pitch (or soccer field to define the metaphor more readily) is absolutely not level (a lack of transparency of markets, trades, and companies-- let alone parity amongst status of trading parties), everyone knows this, but the referees (power elite) assure us that indeed the market is trading at a free clip, and they are doing their best to weed out the inept and destructive government (singular as in government is bad) in order to get back to those players to whom that unfair pitch advantage works against.
It is, like many convincing fallacies, a perfect ecosystem of utter nonsense.
What was revealed when the Wizard came out from behind the curtain?
The rules of the road were designed to insulate power elites from those market forces that every small business owner (not suckling directly from the teat of one or more of the power elite) faces yearly, monthly, daily, hourly, and even at a moment by moment level, wherein one bad decision can have the whole house of cards tumble down on them, their employees, and their families.
Perfect capitalism for 96% of the business owners in America, and pure communism for the ~4% that retain ~92% of the wealth and direction of capital.
The main difference here? That fallacy of "perfect" and "free" markets has been unmasked. For me it doenst make me less of a Keynesian or Miltonian (of which I am only some part in either case), rather confirms the sound logic of truth found within the mathematical models.
For all practical reasons, it wasnt the theories that were flawed, rather the implementation of those theories. You dont go golfing with Tiger Woods, and on holes 3, 7, and 12 receive a "0" on your score (an impossibility), then go on to say you bested Tiger Woods at Augusta for the Championship!
For lack of a simpler explanation that is what Corporate America has been doing for decades!
My Miltonian Tax suggestion of reducing tax paperwork to the size of a postcard, is premised on the fact that massive corporations with armies of lawyers can end up getting paid by the government, whereas the business owner will typically pay between 12 and 44% of GROSS EARNINGS in a profitable year to the Government!
LEVEL THE PLAYING FIELD, PLEASE!!!
So, what are my suggestions?
A. Simple, Fair, and Flat Tax for individuals, businesses, and everyone and everything in between. I think if you make annually inflation adjusted exemption provisions for the first $22K individually, $38K jointly, $6K per child, and $40K for business plus $6K per employee, then a 13% flat across the board on first moneys and profits tax should suffice to amply maintain the Federal treasury. Double tax only counts in certain specific cases, but honestly the concept of a "double tax" is in itself a product of the Labyrinthine tax laws themselves. Simple, plain, and honest: You earn money, invest it and make more... you are taxed on the money you earn. So called "death" tax is a myth, and any exemption should be put onto a matrix which allows for inflation and number of legatees, but otherwise massive fortunes do need to have the same 13% (a lowering of current complex statues) flat tax after expemptions upon transfer of estate.
B. All regulation needs to be put into Plain English. There needs to be a rule book for all people that everyone who speaks a 7th grade level of English can understand, but moreover, each field of employ and oversight needs a smaller and comprehensive annual rule book for the relevant profession(s). If you are a Stock Broker, for instance, the SEC needs to publish a Plain English Guide to all relevant laws (including definitions of crime and punishment) which is the basis for testing and licensure. How do we expect companies to follow laws their people couldnt understand without a law degree? This will facilitate whistleblowing, self governance, and enforcement. (On that note free markets if given clear straight, and bright lines do have the ability to self govern.)
C. International Harmonization. Its well time to beat our swords into plowshares. NATO can also be an economic body which assists in (a la Bretton-Woods) harmonizing economic functions. Why limit it to NATO? Trade Areas can work, and do work. However, just as we need to (for lack of a better word) admit that NATO is also an economic force, we also need to create Fair Standards in order to proceed honestly with our Trading Partners-- applying that standard basket of goods (environment, civil rights, and labor standards) as a preset disposition for negotiations. If any free trading regions partners can all agree to certain basic workers rights, then there is no price advantage to using slave or child labor in order to queer the productivity quotients and balances. This esoteric set of ideas (which I have simply called Fair Standards) is the nutshell of why we have lost so many jobs over seas-- not just "tax advantages" as certain groups would have you believe.
D. Mortgage Relief. I will be writing a more defined explanation of this soon, but here it is in the nutshell version. There are many of the steps necessary to implement a comprehensive relief in place under the current "bailout" plans passed, but my addition would be EVERYONE NEEDS TO FEEL SOME OF THE PAIN. Borrowers should still be on the hook for the full amount of the mortgage when enjoying payment reduction, Lenders should be on the hook to not get their money back in time, and all the middlemen, servicing agencies, and investors need to accept such bi-lateral intervention (as negotiated in mathematical formulation by the FFT [Fannie-Freddy-Treasury] guidelines and agents) regardless of how much money they stand to lose-- BECAUSE THEY ARE JUST MIDDLEMEN! Investors, sorry, but tough turkeys, you put money on those bets, were told the money was at risk, otherwise the SEC and FBI can arrest the brokers for non-disclosure... that said I think most licensees put investment disclosures on their business cards (a financial industry joke). The Government should tread very lightly in using its power to "renegotiate" existing agreements, and that said it is the Lenders right to refuse a renegotiation and foreclose... otherwise we strip Rule of Law (and contracts).
E. Stimulus. See my article on what we can do with the money we save by ending the War. more... more....
Just my two cents.... you can pay me later.
Friday, March 23, 2007
Open Letter to the Senate Banking Committee
To Whom It May Concern:
I find the gestures by the Senate a touch misguided, or even potentially disingenuous.
That being said, I would hope that in this inquisitive and exploratory stage, a person who is held up in public as a qualified expert on the subject of mortgages would be able to put in his tax free two cents.
It is not my personal opinion that I am an expert, rather that by the definition of California laws that for the health and longevity of my career that I take the actions necessary to meet the definition of "an expert" by operation of CA law.
This is true for the Salesperson who is required three college level classes, five tests, and an FBI level backround check. Moreso, for the people, like myself, allowed to hold themselves out as Real Estate Broker, where it becomes eight classes, eleven tests, and the same check.
In CA, we do have another type of Mortgage License, available to Corporations, and regulated by our Department of Corporations. Although they are regulated in a different manner, materially they are beholden to most of the same practices we on the Real Estate side are-- with the notable exception of not having to make disclosure on the MLDS of rebates received from an in-house banking resource. Hereafter I shall only be referring to our Real Estate side of the equation.
Unlike other states, whose laws I am unfamiliar, I can only speak from the point of view as a Real Estate Broker doing business in primarily CA. In our state, the common and legal practice is for the person signing the bottom of any mortgage application to be a real estate licensee.
In our standard regulations it has always been our agency practice, and my understanding that our practices are more or less standard to the state and federal laws, to have delivered (or attempted delivery) of a loan application no more than three working days from an origination. Most Lenders, such as Countrywide, et. al., require upon submission a signed initial application before conducting Underwriting.
Any subsequent change at any point in the complex negotiation process between agent on behalf of client and lender requires us to verbally disclose such changes to client, and materially deliver evidence of those changes in a reasonably timely manner on a revised application.
Contrary to assertions in some of the testimony by certain of the consumer advocates, the client of a good Broker will have had many chances to review the mortgage application as it is processed, and not meet that document for the first time at the signing table three or four days before funding-- and often when the luxury of saying "no" to a set of loan documents (the legal instrument of the mortgage) has moved on for the client.
A broker is the person who brings the massive corporate money to the householders. Our job then requires us to walk both worlds. That of the consumer advocate, and that of translator.
The loan process asks us to translate our clients situation to the Lender in a standard format whereby a credit decision can be made.
In that process, we are required to be reasonable within the purview of law and ethics. In the most unreasonable possibilities, operation of section 32, as we call it, will prevent any agent or Lender from approaching, in most instances, and avoiding always, the definition of usury.
Regulations D, Z, et. al., have provided additional training for the average consumer to think in terms of "RATE."
What is confusing is that the rates which they typically identify on TV, Radio, Billboards, Newspapers, etc. are APR, not note rates. Moreover, there is an "apples and oranges" phenomenon. What I mean is that in the ten to twenty factors which can define the Terms of any loan are typically unseen, unknown, and undisclosed except at the signing table.
Unlike certain implications and assertions at the hearing yesterday, this is not from unethical dealers (in most instances). In the case of the so-called "exotic mortgages," this is really a function of most licensees not having the time, energy, or in some cases skill or capacity to even begin to master the subtleties of such products.
As one who has done that for quite some time, the Lenders make subtle changes over time, changing the thresholds and requirements, and often creating confusion in their broker liasons and thus by default providing agents with less than perfect information to provide in good faith to the clients.
In many instances the Lenders are able to make exceptions, allowing a client who has met guidelines on an application submitted in a prior month to be funded at those qualifications in a subsequent month wherein the guidelines had been moved. Lets say for instance the DTI requirement was revised by the actuaries to 45% from a previously published 50%.
As a emipthetic witness to their efforts and good faith, although this example may allow certain parties the opportunity to characterise a Lender as creating a risky situation for the consumer, most Lenders want to keep faith with the consumer. The motivation of most sub-prime Lenders is not to "churn and burn" the consumer, whereby they are required to run like a hamster on a wheel of refinances year after year.
Consumers are at the end of the day required to take actions necessary to make an informed decision. Caveat emptor (buyer beware). I could regale endless examples and stories of clients hearing what they want to hear, but my fiduciary obligation prevents me.
I found that my training as a teacher of children for four years was very handy in the educational process I was required to subject most listening clients to. That said, not everyone can be expected to get straight A's. Most clients are working full-time jobs to pay their mortgages and consumer debts... they don't need to become fully trained loan officers just to refinance.
Actually, that brings me to the my characterization of the Senate being disingenous. Consumer spending habits, debt addictions, and fiscal disciplines are fed by a steady diet of junk food.
Advertisers and even government officials asking the American citizenry to spend money on non-necessities distract from family budgets.
Credit card offers sent to new homebuyers in a volume which would allow them to wallpaper their new home in a year are no help to the young couple starting out.
Easy credit for furnishing, autos, and other consumer goods to fill that new house blindside even the most studious and well intentioned family when start rates and no payment clauses expire.
No, its not the Mortgage Lenders to blame, nor the Brokers.
To be sure, there are some bad apples. And people like Mrs. Haliburton and the Advocates she contacted must continue to pursue their efforts to weed out bad practices and shady practicianers.
Here are my suggestions;
1. Expand consumer protections.
For now, the only thing an advertiser must publish is an "APR," which I defy every senator to be able to calculate accurately from three scenarios without the aid of a computer. I would be surprised if ten members could even do that with the aid of a standard calculator. Suffice to say it is a complex formula.
Consumers are by instinct led to beleive that "RATE" is the most important feature to a loan, and the expansion of the "exotic mortgage," a term which I find offensive, market bloomed when a loop hole in calculating the APR by use of start rates and MOST IMPORTANTLY START INDEXES was perceived by the Lenders.
Right now I find the APR requirement (although an important indicator) to be asking consumers to fly a plane with only a wind speed guage.
I have to add, please streamline the overall process, because making things more complicated and layered will only create more opportunities for well intentioned fiduciaries to make mistakes due to subtlety and complexity of law.
2. Expand consumer protections (on other forms of credit).
If the credit card industry was required to follow the regulations of a mortgage application conducted by operation of real estate law in the state of CA, then America would be a healthier fiscal society. Imagine "sitting at the table" with the disclosures on what amounts to a virtual negative amortization variable product.... 28% APR? Actually, true potnetial APR for many credit cards is far greater than any present requirements in published rates!
In fact, most disclosures are in the form of a non-signed, opt-in, 6-point font format. The paper is often smaller than your hand, and the legalese is intracable. If the mortgage industry was able to get away with the legalized mafioso practices of the Credit Card industry America would be Bankrupt.
If the poor, dumb, ignorant householder (yes, I am being sardonic) uses most forms of consumer credit say 96% of the time for 14% of their total debt, and the other 4% of their time they are concerned with that catagory of credit known as mortgage, the other 86% in this example, then the culprit in creating poor habits in that "consumer" is the vigorous consumer credit industry.
The reason I find it so incredible to blame the Mortgage industry for American spending woes is because in the case of laws, such as the Patriot Act, the citizen is told "ignorance of the law is no excuse."
Not equivocating corporate creditors with government, but its a bit overstated to point out the "sub-prime" mortgage market as the source for the consumer savings and debt crisis. Most brokers and Lenders are "taking the order" of the American consumer.
Again, I could cite many instances of my educated opinions falling on deaf ears only to fiduciarily effect an outcome which would be second or third on my list of best possible options for that households particular financial long-term health. The fiduciary obligation cuts both ways.
3. Clamp down on the Credit Card Industry.
Consumer credit is one thing, but Credit cards are an entirely different bag of hammers.
There are no ethical guidelines for workers at a credit card company to follow. In taking your application (assuming you even talk to anyone), processing, servicing, or collection practices the guidelines must be so thin as to avoid notice altogether.
Yes, there are certain standards, but there is a deep seated chaos in the granting of easy credit on the one end and punitive fee practices on the other end of that spectrum.
What message are lawmakers allowing these companies to send to consumers. How does this make for an educated, aware, and responsible society?
I can understand how certain members of your constituencies (some of my former neighbors, and possibly some of my present ones) can bring themselves to characterize credit cards as "the devil."
I am not of that ilk, and beleive with strong reform there is a place at the table of the American Economy for a healthy, honest, fair, and ethical consumer credit industry.
4. Expand Education.
Schools need to teach practical maths from ages 6 through 16.
Schools need their funding.
Schools need so much help and reform, I just wont go any further here.
5. Harmonize state law requirements.
I understand there are states wherein virtually anyone can originate a mortgage.
On the other hand some states (like Texas) make so many prohibitive laws so as to reduce the marketplace to exposure, thus competition, and thus most consumer choice.
Although education may not make agents, who are after all people, ethical, it can help in making them competent. Fingerprinting may discourage a certain bandwidth of potential bad apples, but at the end of the day... money seems to make people do weird things.
CONCLUSION;
I am of the belief however, that it is not "money," or whatever the thing is, that "makes" anyone do anything.
Rather we are a society of Rights and Responsibilities.
As citizens we are granted certain Rights, and it is the Congresses job to protect and steward those bundle of rights for all citizens-- and by impication in more noble times we could add "and all people of the world."
However, we are also responsible to one another. That is what motivated me to speak out in this blog after enduring C-Span for an hour or two on a subject in which it is my obligation to monitor.
Each person is responsible for his or her actions, and ethics and fair dealing is no exception.
Money is not the root of all evil, rather poor decisions and misguided intentions.
Let us pray for the good decisions and well-researched intentions of our lawmakers.
I find the gestures by the Senate a touch misguided, or even potentially disingenuous.
That being said, I would hope that in this inquisitive and exploratory stage, a person who is held up in public as a qualified expert on the subject of mortgages would be able to put in his tax free two cents.
It is not my personal opinion that I am an expert, rather that by the definition of California laws that for the health and longevity of my career that I take the actions necessary to meet the definition of "an expert" by operation of CA law.
This is true for the Salesperson who is required three college level classes, five tests, and an FBI level backround check. Moreso, for the people, like myself, allowed to hold themselves out as Real Estate Broker, where it becomes eight classes, eleven tests, and the same check.
In CA, we do have another type of Mortgage License, available to Corporations, and regulated by our Department of Corporations. Although they are regulated in a different manner, materially they are beholden to most of the same practices we on the Real Estate side are-- with the notable exception of not having to make disclosure on the MLDS of rebates received from an in-house banking resource. Hereafter I shall only be referring to our Real Estate side of the equation.
Unlike other states, whose laws I am unfamiliar, I can only speak from the point of view as a Real Estate Broker doing business in primarily CA. In our state, the common and legal practice is for the person signing the bottom of any mortgage application to be a real estate licensee.
In our standard regulations it has always been our agency practice, and my understanding that our practices are more or less standard to the state and federal laws, to have delivered (or attempted delivery) of a loan application no more than three working days from an origination. Most Lenders, such as Countrywide, et. al., require upon submission a signed initial application before conducting Underwriting.
Any subsequent change at any point in the complex negotiation process between agent on behalf of client and lender requires us to verbally disclose such changes to client, and materially deliver evidence of those changes in a reasonably timely manner on a revised application.
Contrary to assertions in some of the testimony by certain of the consumer advocates, the client of a good Broker will have had many chances to review the mortgage application as it is processed, and not meet that document for the first time at the signing table three or four days before funding-- and often when the luxury of saying "no" to a set of loan documents (the legal instrument of the mortgage) has moved on for the client.
A broker is the person who brings the massive corporate money to the householders. Our job then requires us to walk both worlds. That of the consumer advocate, and that of translator.
The loan process asks us to translate our clients situation to the Lender in a standard format whereby a credit decision can be made.
In that process, we are required to be reasonable within the purview of law and ethics. In the most unreasonable possibilities, operation of section 32, as we call it, will prevent any agent or Lender from approaching, in most instances, and avoiding always, the definition of usury.
Regulations D, Z, et. al., have provided additional training for the average consumer to think in terms of "RATE."
What is confusing is that the rates which they typically identify on TV, Radio, Billboards, Newspapers, etc. are APR, not note rates. Moreover, there is an "apples and oranges" phenomenon. What I mean is that in the ten to twenty factors which can define the Terms of any loan are typically unseen, unknown, and undisclosed except at the signing table.
Unlike certain implications and assertions at the hearing yesterday, this is not from unethical dealers (in most instances). In the case of the so-called "exotic mortgages," this is really a function of most licensees not having the time, energy, or in some cases skill or capacity to even begin to master the subtleties of such products.
As one who has done that for quite some time, the Lenders make subtle changes over time, changing the thresholds and requirements, and often creating confusion in their broker liasons and thus by default providing agents with less than perfect information to provide in good faith to the clients.
In many instances the Lenders are able to make exceptions, allowing a client who has met guidelines on an application submitted in a prior month to be funded at those qualifications in a subsequent month wherein the guidelines had been moved. Lets say for instance the DTI requirement was revised by the actuaries to 45% from a previously published 50%.
As a emipthetic witness to their efforts and good faith, although this example may allow certain parties the opportunity to characterise a Lender as creating a risky situation for the consumer, most Lenders want to keep faith with the consumer. The motivation of most sub-prime Lenders is not to "churn and burn" the consumer, whereby they are required to run like a hamster on a wheel of refinances year after year.
Consumers are at the end of the day required to take actions necessary to make an informed decision. Caveat emptor (buyer beware). I could regale endless examples and stories of clients hearing what they want to hear, but my fiduciary obligation prevents me.
I found that my training as a teacher of children for four years was very handy in the educational process I was required to subject most listening clients to. That said, not everyone can be expected to get straight A's. Most clients are working full-time jobs to pay their mortgages and consumer debts... they don't need to become fully trained loan officers just to refinance.
Actually, that brings me to the my characterization of the Senate being disingenous. Consumer spending habits, debt addictions, and fiscal disciplines are fed by a steady diet of junk food.
Advertisers and even government officials asking the American citizenry to spend money on non-necessities distract from family budgets.
Credit card offers sent to new homebuyers in a volume which would allow them to wallpaper their new home in a year are no help to the young couple starting out.
Easy credit for furnishing, autos, and other consumer goods to fill that new house blindside even the most studious and well intentioned family when start rates and no payment clauses expire.
No, its not the Mortgage Lenders to blame, nor the Brokers.
To be sure, there are some bad apples. And people like Mrs. Haliburton and the Advocates she contacted must continue to pursue their efforts to weed out bad practices and shady practicianers.
Here are my suggestions;
1. Expand consumer protections.
For now, the only thing an advertiser must publish is an "APR," which I defy every senator to be able to calculate accurately from three scenarios without the aid of a computer. I would be surprised if ten members could even do that with the aid of a standard calculator. Suffice to say it is a complex formula.
Consumers are by instinct led to beleive that "RATE" is the most important feature to a loan, and the expansion of the "exotic mortgage," a term which I find offensive, market bloomed when a loop hole in calculating the APR by use of start rates and MOST IMPORTANTLY START INDEXES was perceived by the Lenders.
Right now I find the APR requirement (although an important indicator) to be asking consumers to fly a plane with only a wind speed guage.
I have to add, please streamline the overall process, because making things more complicated and layered will only create more opportunities for well intentioned fiduciaries to make mistakes due to subtlety and complexity of law.
2. Expand consumer protections (on other forms of credit).
If the credit card industry was required to follow the regulations of a mortgage application conducted by operation of real estate law in the state of CA, then America would be a healthier fiscal society. Imagine "sitting at the table" with the disclosures on what amounts to a virtual negative amortization variable product.... 28% APR? Actually, true potnetial APR for many credit cards is far greater than any present requirements in published rates!
In fact, most disclosures are in the form of a non-signed, opt-in, 6-point font format. The paper is often smaller than your hand, and the legalese is intracable. If the mortgage industry was able to get away with the legalized mafioso practices of the Credit Card industry America would be Bankrupt.
If the poor, dumb, ignorant householder (yes, I am being sardonic) uses most forms of consumer credit say 96% of the time for 14% of their total debt, and the other 4% of their time they are concerned with that catagory of credit known as mortgage, the other 86% in this example, then the culprit in creating poor habits in that "consumer" is the vigorous consumer credit industry.
The reason I find it so incredible to blame the Mortgage industry for American spending woes is because in the case of laws, such as the Patriot Act, the citizen is told "ignorance of the law is no excuse."
Not equivocating corporate creditors with government, but its a bit overstated to point out the "sub-prime" mortgage market as the source for the consumer savings and debt crisis. Most brokers and Lenders are "taking the order" of the American consumer.
Again, I could cite many instances of my educated opinions falling on deaf ears only to fiduciarily effect an outcome which would be second or third on my list of best possible options for that households particular financial long-term health. The fiduciary obligation cuts both ways.
3. Clamp down on the Credit Card Industry.
Consumer credit is one thing, but Credit cards are an entirely different bag of hammers.
There are no ethical guidelines for workers at a credit card company to follow. In taking your application (assuming you even talk to anyone), processing, servicing, or collection practices the guidelines must be so thin as to avoid notice altogether.
Yes, there are certain standards, but there is a deep seated chaos in the granting of easy credit on the one end and punitive fee practices on the other end of that spectrum.
What message are lawmakers allowing these companies to send to consumers. How does this make for an educated, aware, and responsible society?
I can understand how certain members of your constituencies (some of my former neighbors, and possibly some of my present ones) can bring themselves to characterize credit cards as "the devil."
I am not of that ilk, and beleive with strong reform there is a place at the table of the American Economy for a healthy, honest, fair, and ethical consumer credit industry.
4. Expand Education.
Schools need to teach practical maths from ages 6 through 16.
Schools need their funding.
Schools need so much help and reform, I just wont go any further here.
5. Harmonize state law requirements.
I understand there are states wherein virtually anyone can originate a mortgage.
On the other hand some states (like Texas) make so many prohibitive laws so as to reduce the marketplace to exposure, thus competition, and thus most consumer choice.
Although education may not make agents, who are after all people, ethical, it can help in making them competent. Fingerprinting may discourage a certain bandwidth of potential bad apples, but at the end of the day... money seems to make people do weird things.
CONCLUSION;
I am of the belief however, that it is not "money," or whatever the thing is, that "makes" anyone do anything.
Rather we are a society of Rights and Responsibilities.
As citizens we are granted certain Rights, and it is the Congresses job to protect and steward those bundle of rights for all citizens-- and by impication in more noble times we could add "and all people of the world."
However, we are also responsible to one another. That is what motivated me to speak out in this blog after enduring C-Span for an hour or two on a subject in which it is my obligation to monitor.
Each person is responsible for his or her actions, and ethics and fair dealing is no exception.
Money is not the root of all evil, rather poor decisions and misguided intentions.
Let us pray for the good decisions and well-researched intentions of our lawmakers.
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