Predatory Lending - Big Time

[Jim O'Bryan]

Well I see where the Federal Reserve has reached into it's pockets to lend the USA another $200 billion dollars.

Talk about your predatory lenders!

What was worrying most to me was that the Federal Reserve asks for help.

"The US Federal Reserve, the European Central Bank and central banks in the UK, Canada and Switzerland will inject billions of dollars into money markets."

Noe the Federal Reserve has the right to print our money. During the Nixon era we went from Gold Back notes to "promissory notes." Backed with nothing but good faith.

So what is the deal? Have we nearly bankrupted the private banks that back the Federal Reserve, or are they starting to sell off the loans, just as local banks do?

And what happens when it comes time to pay the piper?

I believe they have given more than enough rope to hang ourselves.

When does Mr. U. Sam get the letter in the mail on the repossession?


Troubling news.

Good news, people are now speculating in mass buying up the homes emptied by the American dream with 2nd mortgages!


FWIW



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[Bill Call]

Well I see where the Federal Reserve has reacjed into it's pockets to lend the USA another $200 billion dollars.

This article sums it up nicely:

http://online.wsj.com/article/SB1205280 ... columnists

That house in Slavic Village was never worth $100,000 and the 25% annual appreciation in housing value was never sustainable.

And yet the policy of the US government is to pump enough borrowed money into the banking system to sustain the unsatainable. The result will be a sharper decline in housing values in the near future.

What troubles me even more is that that policy will punish those who did not gamble on housing speculation, will punish those who lived within their means and will punish those who still have equity in their homes. And it will make it even more difficult for communites like Lakewood to cull the housing stock.

People who "bought" their homes with nothing down based on low teaser rates never "owned" a home. They were renters. If the rents too high quit whining and move. I can't think of one reason why the government should bail out you or your bank.

[Jim O'Bryan]

People who "bought" their homes with nothing down based on low teaser rates never "owned" a home. They were renters. If the rents too high quit whining and move. I can't think of one reason why the government should bail out you or your bank.

While I agree in principle with what you say. I can think of several reasons to bail out some.

Predatory/unfair unscrupulous business practices. And the institutions or individuals should be hauled into some form of court.

As for the drunken sailors running the country, and letting the Fed release more crack into our broken banking system seems at best cruel.

FWIW


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[Lynn Farris]

One of the fascinating things that Dr. Ron Paul discussed heavily is the role of the Federal Reserve and how the monetary policy will destroy our country. Outside of the War, and the Civil Liberties - this is one of the things that drew so many people to Dr. Paul. Austrian Economics is not flashy - but once you start reading - you are impressed.

One of the simple things that Dr. Paul suggests is that these Fed. Reserve meetings need to be televised. They need the light of day. We are borrowing so heavily and printing money so that our currency is devaluating quickly and inflation which is a huge tax particularily on the elderly is going to kill us.

I would like to see pressure put on these lenders to work things out with the borrowers. But a true economist would tell you that the market will take care of this. Lenders if they aren't bailed out will suffer and not make these bad loans. People will get out of the bad loans by defaulting. Of course on a personal level - this is horrible - so something has to be done and I think that is to put pressure on the lenders to work together. Of course most of these loans are now held by foreign banks. So it isn't like dealing with First Federal of Lakewood.

What I find disturbing is the desire to help the lenders and not the individuals. Thereby perpetuating this bad lending behavior.

[Tim Liston]

Although I have been characterized as some kind of a finance expert on these boards, I am not. And I admit to a lot of confusion over yesterday's Fed moves, which has not been clarified by what I have read and heard in the last day.

For starters, the Fed as agreed to make $200 billion available to big banks/brokers (so-called "primary dealers") in the form of 28-day loans of treasuries. The banks/brokers will use mortgage-backed securities (MBS's) as collateral. Those MBS's are largely illiquid because nobody really knows how much they are worth. Eighty cents on the dollar? Thirty cents on the dollar? Nobody knows. They're all supposed to be rated AAA but if they really were, they'd be sold by now.

So what happens after 28 days? Presumably the banks/brokers have to return the treasuries (or cash I suppose) to the Fed. So unless the bank/brokers can establish a value to the MBS's and get them sold, so as to repay the Fed, either the Fed has to grant an extension of the loan, or the bank/broker is in default, if in fact the bank/broker spent the $200 billion to make new loans. It seems improbable to me that the bank/broker can find buyers for those MBS's in that 28-day period. That's why the $200 billion “loanâ€

[Tim Liston]

Lynne you're right about the Fed. Their ability to print money, and to regulate interest rates, has contributed to the housing crisis, for two reasons. First, unrealistically low rates in the first half of this decade encouraged real estate speculation (e.g. Flip This House), and second, because the Fed perceives that it can mitigate the resulting credit crunch by lowering rates and printing money, they bail out those who took unreasonable risks (mortgage lenders and their borrowers) at the expense of savers and taxpayers generally.

There are two other government policies that are also to blame. One is the so-called reserve requirement, which lets banks lend a lot more money than they actually have available in deposits. In some senses the reserve-requirement actually lets the banks create new money, at artificially low rates. The second is government promotion of home ownership by way of Fannie/Freddie, tax breaks on mortgage interest, etc. On the face of it, such subsidies seem altruistic, but anytime you subsidize something, you encourage overspending, which eventually comes back to bite you.

I have started to make small “betsâ€

[Bill Call]

I agree with this writer. The whole "crisis" is overblown.

see:

http://articles.moneycentral.msn.com/Ba ... blown.aspx

[ryan costa]

History tends to repeat itself. After the Civil War there was an economic boom. 35,000 miles of new rail was built in six years. Then a new Recession hit. 25 percent of the nations 364 railroads went out of business.

Ron Paul has a lot of great ideas. The gold standard is a bad idea. Before theCoinage Act of 1873, currency had been backed by both Gold and Silver. That seems pretty substantial compared to today, but they wanted just Gold Back then.

Some kind of lobbyists said currency should all be gold. It was a Trap! The results were catastrophic. There were bank runs all over town. Within no time the nation had 14 percent unemployment, which was pretty big because most women didn't work outside the home or farm and most people worked almost until they died. That would be at least 28 percent unemployment today. British bankers bought up a lot of stock in rail roads and heavy industry: was that the foreign investment we needed?

It basically shut down the rise of a southern middle class, and by default, a large African American middle class.

In the good old days of the 19th century American Past, there wasn't a very big national fiat banking system. There were thousands of private Fiat Banks! And most of them went bankrupt within 14 years!

The money supply has to grow with growth in production. Gold doesn't magically grow with productivity increases. There would have to be constant deflation to facilitate economic growth. But you can't sell or buy anything on negative credit interest.

The reserve ratio is a good idea. It requires the banks to keep a minimum percentage of their accounts handy in cash or federal notes or federal securities or something. It is a better tool than manipulating interest rates. But manipulating interest rates is better for promoting specific sectors of the economy. In our case that sector was a bit too much sprawl.

We had to De-industrialize to finance more sprawl and and buy more of the stuff on tv, which paid for more tv programming. It set the stage for Reaganomics, which was one long infomercial. Because our currency had weight and momentum we could do this for a long time! The process is complete, and we are now kind of like a South American country on the books. They usually inflated their way out of the worst throes of massive debt. America will probably do the same.

for some reason Germany and Japan started making better cars and appliances than us, and better manufacturing methods for making them. Even though they pay higher taxes or had greater anti-monopoly enforcement or were given mandates by national interests.

200 Billion dollars in bailouts for mortgage bundled securities isn't that much. At an average value of 200 grand a mortgage, that is only 1 million houses and condos. We have at least 90 million more houses and condos. it is ok!.

We are exactly at the spot we were headed for during the height of the 80s reagan economic boom. It is a clear trajectory from there to here.

Conservatives like to claim our currency should be backed by gold. But theres way more currency/checking accounts than gold at the present value of gold. Warren Buffett is one of the best guys, and even he says Gold is foolish. However, in the 1980s, there was no proof that cash was overvalued if it is just supposed to represent the productive capacity of the economy. That's when the leveraged buyout bonanza began, and also when the Mortgaged Backed Security(some kind of Bond) were invented. the way Liars Poker explains it The Ultimate Free Market players made a lot of money creating bonds and using them to buy real companies and other bonds. At some point along the way it seemed like a great idea for Savings and Loans to invest in these! And then a lot of them went bankrupt! But the best free market advocates still made fortunes!

Today is just a repeat of the Savings and loan crisis of the 80s. They've just rearranged the flow chart a bit. There aren't many Savings and Loans to be losers, so other groups will have to be the losers.

We don't need a gold standard. None of the people we borrow money from are on a gold standard. They just have better run central banks, more protectionism, and more socialism. We don't need the Austrian School. We need theAmerican School.

[Jim O'Bryan]

We don't need a gold standard. None of the people we borrow money from are on a gold standard. They just have better run central banks, more protectionism, and more socialism. We don't need the Austrian School. We need theAmerican School.

Gold nor Silver will work though the Ruble went back to the Gold Standard I believe and did very, very well with it. Both are too high now.

However, some of us have thought of a currency backed with fresh water, would be interesting.

[ryan costa]

liquid currency. heh heh heh.

for it to have worth you would have to be able to occasionally transport large quantities of it. otherwise it would mostly be certificates representing water. which is mostly what people who "buy" gold settle for.

Currency may as well be backed by temporary leases on parcels of our vast federal and state lands.

[Jim O'Bryan]

liquid currency. heh heh heh.

Fresh water

worth more than dirt

worth more than oil

maybe worth more than gold

Not worth as much as H3

who knows.

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[Tim Liston]

Good morning Bill!

Just wondering if you are going to tell us that we don't have a housing crisis still.

Right now, it's time for the Fed to tell anyone who was overly leveraged,, or leveraged at all, or over-invested in equities (just about everybody), that you are just gonna have to take your losses. Hedge fund investors, housing speculators, equity investors, the free lunch crowd.

Right now we need to protect the dollar from complete collapse.

We are about to find out two things. One, there never was something for nothing. Two, that our standard of living is about to ratchet down a couple notches.

[Bill Call]

Good morning Bill!

Just wondering if you are going to tell us that we don't have a housing crisis still.

I hate to start an argument but...

I think the housing bubble and the liquidity crisis are interrelated but not interdependent.

If housing prices decline to their equivalent rental values we are looking at another 30-50% decline in some markets. That means your house will be worth what it was worth 10 years ago. A crisis for those who bought during the last few years but not a crisis for everyone. And every crisis is an opportunity.

The Bear Sterns debacle? I don't know. I'm not sure how much it has to do with sub prime mortgages and how much it has to do with investment houses leveraging their investments in financial instruments they didn't understand. ($39 Billion in bonuses in an investment house that is now bankrupt? Maybe we are dealing with good old fashioned fraud or maybe those financial geniuses are pretty stupid. I'm betting on stupid.)

This is worth pursuing although I suspect you and I are the only one's who find the subject interesting.

The article I sited showed that some areas are more affected than others by the decline. I think it is interesting to note that the Cleveland area did not really share in substantial increases but will experience substantial declines. The point? That the decline in the Cleveland area has more to do with the local economic environment than the worldwide breaking of the housing bubble. The point? Maybe the solution here is not dependent upon national action but on local action. What does that mean? Hellifiknowimjustthinkingoutloud.

Anyway it's going to be a bumpy ride.

[Tim Liston]

Bill I'll argue with you. And if others don't find it interesting, there's lots of other threads.

Fundamentally, we don't have a what you called a “liquidityâ€

[Jim O'Bryan]

As home values drop, even prime loans become toxic, because they are collateralized by homes now worth less than the loan balance. That's why we're starting to see foreclosures on McMansions in California for example, owned by folks who make enough to pay the mortgage, but instead have chosen to walk away.

As mentioned here over a year ago. The comment, "Do not make another payment, grab what you can carry and walk away while you can. Walk away while you can still get a good deal on a quality rental. Cut your losses!"


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