Tag Archives: mortgages

Some Things I Miss

We have many marvelous gadgets, tools and devices these days to make our lives easier and I enjoy having most of them.  We have changed the way we do business in our personal lives and in industry.  I suppose many of those changes are useful but I am not so sure.   They in theory make our work more efficient and that is true is some instances but might be an impediment in others.  Socially the changes are quite large over the last 60 years and regarding those I have serious doubts as to their social effacacy.  I am not sure we are a better society for the alleged improvements due to social engineering and the brute force of political correctiness.  There are some things from the past that I feel strongly about.  Some gadgets, processes and systems were better then than the replacements that have evolved.  Below I list some of those I miss. 

1. The old school savings account–When I was a child you could save money in your own savings account at a bank at school.  Many of us did that.  You could save literally a nickel or dime or dollar every week in school.  It was a regular part of the home room period.  The amounts were small but it gave a sense of responsibility to the kids.  After a couple of years those nickels and dimes added up to 20 bucks or whatever.  The teacher would help you do the deposit each week.  Wish we still did that.  I wonder if any school districts still have that program?

2. The Series E savings bond–There was a time when you could buy these bonds issued by the Government.  They paid a low rate of return but they were solid and could come in various time frames.  You could get a one year, 5 year or 10 year bond.   They may have had even more of them than that.  They were advertised on the radio, TV, at school and in the papers.  You could buy them at any bank and I believe they were even sold at the post office.  Many a kid got a $10.00 savings bond from old aunt Milly as a birthday gift; they were also popular as a graduation gift from High School.  The Government got the use of the money and the kids learned to delay gratification for a while.  Not a bad thing to learn.   Today everyone seems to think they are entitled to instant gratification for anything they want.

3. The standard 30 year mortgage–You got a loan to buy your house after putting up 15 to 20 per cent down and then that same savings and loan held your mortgage till maturity.  It wasn’t repackaged and sold.  That same s/l also serviced the loan.  They were who you did business with until the mortgage was paid off.  It made them pick good customers and was a very stable if not glamorous industry. 

4.  School leaders–I loved it when the teacher was the boss.  She might be wrong sometimes and overbearing but more often than not she was right and did a pretty good job educating you if you did your part.  They darn sure weren’t glorified babysitters.  They had real authority in the classroom.   If the teacher was the boss, then the principal was God himself.  He ruled the school with an iron fist and had almost total control like the Captain of a ship at sea.   Again, they might have messed up on occasion but not very often.  That authority made us toe the line which is not a bad thing for kids to have to do.   Lots of life is about toeing the line.   Kids were safe at school and you had an education provided and you learned something about authority and how to “play nice” or else you paid the price.

5. Two mail deliveries a day–During my childhood we had a morning delivery of mail then another in the afternoon.  This was true for private residences and businesses.  You could communicate with another business on a same day delivery if the addressee was in your city.  My memory is they stopped doing this in the early ’60’s.  Of course the postmen were much more efficient then.

6. Two daily newspapers–There was a time when every major city and even many mid size cities had at least two major daily newspapers.  Usually one would be a morning paper and the other an evening paper.  Now it appears that newspapers are quickly becoming a thing of the past.  So many are already in bankruptcy or in severe financial straits.  I liked having my morning paper, then coming home in the evening to see what the latest news was. 

7. Latin–There was a time when that was the foreign language requirement in most schools.  Some would take Spanish but they were the same guys taking metal and wood shop classes.  If you were on a college prep course then latin was the language you took.  It is great mental exercise and a great way to develop an understanding of Western culture.  Plus it was very useful in learning English and grammar.

8. Posted grades–Today I know lots of folks would faint at the idea of their grades being posted outside the class room for all the world to see.  In our politically correct world it would be anathema.   It might hurt some one’s self esteem.  When I was in college and law school it was de riguer.  Our grades were posted with the exact numerical grade.  Not only that but you would be ranked with you classmates.  If you were at the bottom of the barrel, it was right there for all  the world to see.  In our modern pass/fail world it must seem barbaric to actually let everyone know how you are doing in school.  But facts are facts, you rate where you rate.  It is a competitive world, or at least I think it should be, and truth of your performance is vital information for future employers.

Many may think these are ramblings inspired by nostalgia and maybe some are but I ask you to think about whether some of these old things are an improvement over the “advances” of the last 60 years.

“The first destroyer of the liberties of a people is he who first gave them b0unties and largesses”.  Plutarch.  With our current political envoirnment and the grotesque growth and reach of our Government, I urge you to ponder that quote from a man smarter than you or me.

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Did the Govt. Confiscate AIG?

When I first read about the takeover of AIG I was curious about the details of how that worked.   I read that the Government took a 80% owenership in the AIG stock and diluted the existing shareholders.   There was scarce mention of any of the details and as a lawyer I was shocked about how fast the takeover was implemented.   The insurance subsidiaries of AIG are regulated by the various states where they do business and insurance companies can be put into receivership by the state authorities.  There is no Federal regulation of the insurance companies.  The parent or holding company of AIG was apparently where  the problems were and the bad investments.  That was the company taken by the Feds.  You have read that the insurance policies will all be honored and I am not surprised by that because the insurance companies are required to have assets both liquid and non liquid backing up their obligations under the policies they write.   AIG holding had obviously invested heavily in the securities backing the subprime  mortgages and it was that position that caused the takeover, at least that was the announced version.   I can only go on what has been made available like you.   

They did the whole thing over a weekend and that was what really got my curiositiy up.   How did they obtain the necessary corporate and shareholder approvals on such short notice?   Well, the facts are emerging.  There was no approval other than apparently by some board vote of the holding company.   I don’t know what state AIG is incorporated in but every state has corporate laws in place that regulate corporate governance and the rights of shareholders.   In all the states a takeover like that would require a vote of the shareholders since their ownership and rights were being affected.   For such a takeover it is usually at least a two thirds votes of each class of shares.   You can understand that a board or no one else can simply come in and take away your stock.   I do wish I had all the details about the structure of this because on the surface it would appear to be illegal.  I know the Federal Reserve has a provision in its enabling statutes that gives it powers to intervene in “exigent circumstances” whatever the hell means.   And when did the Federal Reserve get into the insurance business and the brokerage busines and the investing business.

As you know if you have read here before I have no love for AIG or its shareholders.  Had bad dealings with the  company myself a few years ago.  But I do like things to be done according to Hoyle.   Do we even know that AIG was bankrupt?   Did it have a net worth?   Was it paying its bills on time as they came due?   If you know the answer I would sure like to know and where you got the info.   Point is those shareholders may have had value, maybe a lot, and it was  confiscated by the Government.  Even if it had minimal value the shareholders have the right to expect their company to file a Chapter 11 and see if things couldn’t be worked out over time and return value to them.  Everyone from Barney Frank to Boehner agree those underlying mortgages have long term value.  Saving a company by allowing it to access that long term value is exactly what a Chapter 11 is designed to accomplish.  That right has also been foreclosed by the Government.

Under the 5th amendment to the US Constitution, it provides that “nor shall private property be taken for public use witnhout just compensation” .  No matter the statutory authority of the Fed I think they still have to comply with the Constitution, don’t you?   The Constitution trumps any statute that contravenes its precepts.  What was the public use of the shares of stock taken by the Government?  You know as well as I what things and purposes have been considered as a public use over the last 200 years–roads, schools, post offices, public buildings, utilities, etc.  When did owning stock become a public purpose?  It is one thing to regulate an industry but quite another to seize it and take its value (whatever that may be, great or small) into the Government coffers.   Those share ownership rights are private property.  They apparently have been seized by the Government.   The Government barged in and  said we are taking 80% of your stock.  I have read not one word of what compensation the Government is giving those shareholders.  If the stock was completely worthless as some might argue–then answer me this–why was the Government rabid as hell to get it?   What person what industry might be next on the Government list for takeover for the public good as some bureaucrats and politicians determine that public good.  I don’t even like AIG and frankly thought all along and do now that if it failed then so be it.  If the shareholders lost everything because of that then I have no sympathy for them.   No one seems sorry about my losses in the last couple of months.   However, I am appalled at the naked power play of the Government and what seems to be nothing more than confiscation of property the Government wanted for its own purposes, not a public purpose.   If that is going to be the new game in town then let’s at least do it right and amend the Constitution.  Maybe some of the shareholders will file suit at some point.  Sure would be interesting to follow that case.

We have those Constitutional rights at great costs over the years.  I hate to see them evaporated like a wisp of morning fog on the lake.   Remember the sign off on the Declaration of Independence–“we pledge our lives, our fortunes and our sacred honor”.

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Bailout–Solution or Problem

It rankles me that  many of the elitist from Wall Street and Washington seem to think that they are much wiser and more sophisticated than all us yokels west of the Hudson and the Potomac.   First the folks in Washington  lay all the groundwork for this financial disaster by encourgaging and even mandating the very loan procedures that caused these problems i.e., the affordable housing agenda of some that put people into homes with bad credit and no money down and the protecting of Fannie and Freddie.  Barney Frank and Chris Dodd were their two best friends in Washington.   Then the Wall Street types get even more creative than Michael Millken and add more bells and whistles to every mortgage transaction because with each layer of paperwork there were more fees to be earned.   Lastly, there are the high doom investors not only here in the US but around the world who committed the oldest mistake when it comes to investing in real estate–they bought without “seeing” the dirt.  In this case it was buying without taking a look at the mortgages and the dirt and buyers behind the mortgages.  All the while planning on making a much higher than normal return on their money.  The higher the return the greater the risk, that is a truism of investing since Biblical days.

Then this same cabal of folks tell us exactly how to fix everything.   About 95% of us have been paying our mortgage on time, we could afford it and probably made some other sacrifices along the way to get that house we wanted so badly.   Most of us even had to come up with down payment money and pay all the closing costs also.   I frankly  don’t have a lot of sympathy at all for those who bought a house they could not afford and defaulted.  Some may not have understood what they were signing, but if they are really that dumb they would have figured out another way to mess things up anyway and the mortgage would probably have gone into default.   But if you feel for them we could help out just that five per cent.  It galls me to even consider that.  No one helped me with my payments and no one is helping out you.  Other than stupidity what quality do those folks have that warrants our help?  What makes them worthy of special consideration.  Do I really care about the investors in China or Indonesia who bought these weird investments?   Those Wall Street types were rolling in the dough and flaunting it when the money machine was still working and the politicians were obviously happy with everything.   The blame is broad enough to cover both parties.   There are no innocents in this mess.  

Now these bright people tell us we “don’t understand” and that this is just what we need.   Again the blame for the mess of a bailout bill cuts across all lines.  We can do many things that cost either nothing or far less than is being proposed.   If some version of this bailout does pass then both candidates need to be pressed hard to answer the question if they will follow its dictates or will seek adjustments and amendments as soon as they are elected.   I don’t trust Reid or Pelosi.   They know damn well that whatever they pass can be changed come next spring if their guy wins.   There will be no oversight then.  That scares me.  Who checks on and overlooks the work of Reid and Pelosi?    The people are overwhelming against this measure and for good reason.   The only oversight we have is with the ballot.   With such strong opposition in hte heartland they should have realized this approach would crater.   All those very smart people in Washington and on Wall Street got us here in the first place.  They forget that some of us can remember that less is usually more.  You have all heard the adage of KISS–keep it simple stupid!  Yes, and it normally is very good advice even in complex situations, perhaps truer then than any other time in fact.

Change the mark to market rule.   That will save many of the banks right there and is more “real world” anyway than an artificial accounting rule.   We can think Sarbanes-Oxley for that.  Again the results of unintended consequences and regulation–yes that is a SEC regulation accounting requirement.   Take the 5% of bad loans and place them in a pool.  Have the Government, not buy but guarantee a large portion of the loans.  Go through the loans one by one and the debtors who can’t pay should be foreclosed.  Others that can pay a significant amount with adjustments can  get a new loan.   Sell these new loans into the private market place.   This would cost less than the Government spent to bail out AIG.  We would even get a return of a goodly portion of our money and more quickly than under the current proposal.  All those holding crazy mortgaged backed securities will either get paid or not depending on the underlying mortgages just like the original deal they made.  If they make money fine, if they lose money then so be it.   Focus on just the houses and the bad mortgages.  It is all those mendacious security instruments that are causing the heartburn on Wall Street.  Send them a truck load of Tums.  

I am certainly open to other suggestions and I have no doubt there are even better ones out there.  Like simply having the FDIC and SIPC increase significantly their insurance coverage for deposits and Brokerage accounts.  That would sure calm down the markets a lot at home and wouldn’t cost a dime up front.  

I do hope those pin stripes and politicos will stop looking down their noses at the ordinary folks.  Trust the people.  I always trust the people more than the Government anyday.  I know we argue and disagree and espouse weird ideas at times but we do reach a loose consensus and that consensus here is don’t do a bailout.   Rather than us listening to them maybe they should try listening to us.

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With or Without Parachute–continued

We left off with the building boom and the coincident lending that went with it last time in the Southwest and the sharp drop in oil prices that did affect the economic health of that region.  Two banks had already collapsed.   One deservedly so and another merely as a wiping boy in my opinion.  That second bank in Abilene had its holding company file for chapter 11.   I handled it.  All the creditors got paid and the shareholders even got a return of a portion of their capital investment.  The depositors at the bank did not lose any money either because the Feds made it “sell” those banks to another banking company.   I always wondered what would have happened if my guys had refused to sign the transfer documents that were required by the Feds.  But that was water under the bridge and happened before I was engaged.   Maybe they would have been waterboarded until they signed.

About the same time a real promoter type in Dallas went under.  He had led a very ostentatious life and flaunted his money like hillbilly come to the big city.  He was no doubt living on the edge and turns out there was indeed criminal activity regarding the loans and appraisals to fund his deals.   He had developed many apartment projects and they all went into foreclosure and the lending instituion he used went under.   So the perfect storm was almost complete.  The elements were an overheated building boom, but manageable by itself; a drop in oil prices that did indeed cause a loss of steam in the southwestern economy, but again nothing that wouldn’t have corrected itself in a few years; the failure of a couple of banks, one justified and  one not; and then a high profile developer going under and taking an S and L with him, combined with  actually criminal wrong doing; then add to that mix the media and its insatiable desire to “expose” and titilate with juicy stories and dire warnings that more was to come.  Then came the politicians, the very ones who had promoted all this activity in the first place and had laws in place to encourage it.  No economic storm occurs without politicians behind it, that is a truism.   You can take it to the bank.   The politicians don’t ever, ever like to accept blame for anything (read the headlines of the last few weeks and compare them to the facts about Fannie/Fredie, etc.) and when the media up east gets excited they start calling hearings for oversight and putting extreme pressure on the regulators to correct things.  The regulators depend on Congress for their funding and their prestige and power so they will always respond to the wishes of Congress.

Almost overnight in late 1985 and into early 1986 the FDIC, FSLIC and the Comptroller of the Currency were descending on the southwest in groves and so was the FBI to investigate the “corruption” in the lending business for oil and real estate in the southwest.    They set up special tasks forces.  That always means they are going to find something for sure.   You usually find what you are looking for when you know the conclusion you want to reach.  The politicians acted shocked that people had gotten loans without a personal guarantee and only mortaged the land for collateral on multi-million dollar loans.   They were as shocked as the French cop in Casablanca to learn that gambling went on in Rick’s.   As is always the case, when the Feds really want to find a crime involving paperwork, a so called white collar crime, they almost do so everytime.  They pour over ever document you have ever produced or signed.  If any of those documents have any error then you can be in real trouble if the document ended up even indirectly in the hands of a Federally insured bank or S and L.  I mean routine loan applications and balance sheets showing values or net worth or appraisals.  The courts ruled that you were cheating the Federal government with any of these errors because the banks were insured by the Feds and thus an “agency” of the US!  I had one client who was investigated by the FBI for three years looking for some  crime involving his multi-million dollar loans for real estate deals.  He was convicted for a personal balance sheet that listed his wife’s car at a vaule they said was wrong by a few thousand dollars.  I mean really!  His wife’s car.   What value would you have put on your wife’s car?   And what if later the Feds got several experts to say your value was wrong by at least several thousand dollars–out of a balance sheet listing millions in both assets and liabilities.  I am not making this up.

With all that pressure to examine everything under the sun, of course when the bank examiners started going through the banks’ books they would question everything.  The examiners required new proof that values were genuine on the banks books and often required new appraisals.   This should sound familar with today’s headlines about “mark to market” requirements.   Appraisers can read the papers.  These events were not happening in a vacuum.  The press was breathlessly reporting each little tidbit of rumor or inuendo.   Naturally all the new appraisals came in at lower vaules.  The banks pressed their borrowers to make more payments or starting calling loans due.   The deal almost everytime had been that the banks would renegotiate the short term loans and rework them.  It had been going on  that way for several years.   But now with the pressure from Washington and reporters crawling all over the place they demanded immediate payment.   You should also know, which most of you won’t and there is no reason you should, that in many cases the banks were really “partners” with the developers on the deal. 

Naturally things got much worse and the whole real estate market collapsed.  The lower appraisals made the loans in default and woe to the bank that tried to work out something sensible with a developer.  The market for real estate evaporated overnight.   The banks weren’t making any more of those loans.  The pressure was too intense.  The more the pressure was applied by the Feds and the banks the worse things got.  It spread throughout all of Texas and Colorado and other parts of the country.  

The banks often structured the loans such that they got a piece of the action on the sale or development of the land.   I handled many such cases.   Some were documented exactly that way.  I won’t go into the legal niceties but the courts later ruled that even though the banks had signed such deals that they were not partners because the board of the bank had not approved that arrangement in the board minutes, only a loan and the word “partner” was never used.  But if it looks like a duck, walks like a duck and quacks like one.   A real technicality that overlooked the facts and reality but once again let the Feds look like the innocent lamb that had been hoodwinked by the corrupt developers in the southwest and was costing the tax payers money due to failed banks. 

Many people went to jail.  A handful did deserved that.  There was some lax lending practices here and there but those were business decisions of the banks and borrowers.   There in fact was very little fraud.   Probably a half dozen out of all the people put under the microscope had committed crimes.  The others were  thrown under the train by politicians wanting to blame anyone but themselves and a media that likes to denigrate the blood and gore watching crowds in the colleseum but love to report about each drop of blood in excruciating detail; and the prosecutors lusting for those trophies on the wall regardless of the correctness of the action.  

In many, many of these cases the original developer could and did offer to renegotiate the loan, get new terms such as a lower interest rate or even some reduction in principle but keep the project moving and maintain it and bear all the costs of managing the properties.  After all the developers were much better at managing these properties than the banks or later the RTC.  This would have reduced the size of the losses to the Government by literally billions.  The universal response from the banks/FSLIC/RTC was no.  They took them and ran them terribly and made the losses much worse than they would have been.

Guess I really should stop about here.  This is a much bigger topic than I realized and can’t be condensed very much.   I won’t go into the role of the RTC.  Suffice it to say that it was a boondoggle.    Don’t believe a word you hear now that it was a success and therefore we should be comfortable that any new agency the Government creates to deal with the current subprime bad loans will be able to come out whole or even make a profit.   What all those anaylysts overlook is that the RTC got the properties it took at a very steep and artificially Government-created discount.  The values were low on its books.  Yes, it technically came out fine on its books, but the losses had already been absorbed by the banks and the ordinary Joes here in the southwest.   The overall Government effort was the cause of huge losses and the real estate market took about 7 or 8 years to fully recover.

The Government as usual made things worse and the law of unitended consequences proved itself once again.   What would have been a few banks failing, a handfull of miscreants sent to jail and a significant but manageable slowdown in the southwestern economy became a real disaster due to those people saying “we are from the Government and here to help you”.  Many details in this story have been left out.  Which I could go into all of them but that would I fear test the patience of the reader.   Please check into this yourself and certainly use some of these thoughts as you evaluate the current bailout proposals being bandied about by the same folks who brought it to you.  Yeah, I know about the greed on Wall Street, but the heart and soul is always in Washington.

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Momma “Saves” Fannie/Freddie?

As I have written before I have been concerned that Mother Government would come to the rescue of Fannie and Freddie.  Well, it looks like she did this weekend.  I believe that sets such a bad precedent for the future.  They both were creatures of the Government from day one.  Fannie goes all the way back to FDR.  The Government should never have been in the mortgage business in any fashion.  But the situation endured due to politics over the decades and the intense lobbying of the Fannie folks themselves.   Here the bad news is laid at the feet of the Democrats.  They created it and nutured it for decades and made sure that Democratic-friendly management was in place.   Fannie and Freddie have poured millions into the coffers of the Democratic party over the decades with their lobbying efforts.   It is always a bad idea for any Government to get involved in the business affairs of the people.  Trust the people and let them make their own decisions and bear the consequences of those decisions.  The Republicans could have fought harder over the years but were too shy about appearing not politicially correct and somehow against the interest of the common man.  The common man would have been much better off over the years by having access to a healthy economy and mortgages that made sense from a business standpoint.  Anytime you have an industry that is “propped up” by the Government, you have a distortion in the marketplace that will cause harm sooner or later.  Later has arrived.

Fannie and Freddie do have assets.  They hold mortgages.  The vast majority of those mortgages are current and will remain current on their payments and represent a solid cash stream of money for an investor.  It is a long term investment and would be ideal for pension plans for example.   Those assets still have substantial value.  The folks who invested in a Government company took their chance and made their own assessment of risk.  They should not be rewarded with any Governement help.  Maybe they won’t be.   But that doesn’t offset the millions of dollars that went out in  profits to the shareholders over the years.  When I make an investement in any company, I take the risk.  I reap the reward if there is one and I bear the burden of loss when that happens too.  I bet you have made a couple of  bad investments over the years and no one came to offer you any help.    Bear in mind that the people who owe on their mortgages are in no danger as long as they pay their mortgage payments.  You and I have paid our mortgages on time like a slot machine for years.  We never received or expected any special breaks from anyone.    I have no sympathy for example for investors who bought numerous houses on easy financing and hoped to make a proft on the expeceted rise in home values.    They made an choice and why should we make sure now they don’t suffer a loss on an unwise investment? 

Now that they have been put into Conservatorship the Government should break them down into several much smaller units and sell them off to investors.  Investors will bid.  There is value and a profit to be made.  The Government should get out of the mortgage business entirely.   The Government already regulates the Banks and Savings and Loans, that is sufficient protection for the average Joe.   Do you really want all that Government regulation in your purchase of your next home?   Just read the fine print for once on a FHA backed loan.   Really read it.  It is your property why are you having to conform to all these regulations of the Government?   You won’t have to if you get a private loan.  Those private loans will be readily available if only the Government would get its finger out of the pot.

Also, the precedent is terrible.  You recall we have already mentioned that the Big Three Automakers were approaching Congress with a request for help, to the tune of Billions.   Read your paper and you will see that they are making their move now.  If the Feds are helping out Fannie and Freddie why not the Big Three?  There are lots of votes there with all those auto workers so sadly I think there is a good chance that the Government will offer “loans” or whatever to them.   After just stepping in for Fannie/Freddie it will be harder to say no.    God gave us free will so we could succeed and fail.  A life that “guarantees” only success is no life at all.  Go back and re read Fahrenheit 451 for example.  The Government can’t guarantee success and in fact it shouldn’t try.   Government help comes with a price–they want you to be in thrall to the powers that be in Washington–and you will be.  

Electromagnetism is an amazing property or force.  If you have magnets and a conductor and a little motion you get electriciy to power your home or shaver.  With electricity you can make magnets.  What a circle of power.  That force gives us life itself.  Our magnetic field in Earth literally saves our lives each day.  We would be killed within minutes by the other elements of the electromagnetic force produced by our Sun without its protection.  Gamma ray, x-rays, radio waves, light itself are all part of the electromagnetic force.   Those are only a few of its magical and life sustaining attributes.  I find it spiritual in application.  Not all bodies in the Universe have a magnetic field.  Mother Nature sure doesn’t care if there is one on Earth.  There isn’t one on the Moon for example.   Just one more marker that something special happened when this place we call home was created.

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Bailouts–what’s the dog and what’s the tail?

Well, dear friend, Mother Government has come to the rescue again with the recent legislation for just about everyone to “save” the mortgage business and home ownership.   At least so they assure us.   No one loses we are told by the Kings of Capitol Hill.   I submit to you that there are millions  of losers and that the problem has been mis-stated and the solution shaped to benefit the political fortunes of those seeking votes.   Was it done to help you?   There are millions of people who own their homes outright and millions more who are current on their mortgages and will remain so until it is paid in full as per the terms of the original agreement between the owner and the mortage lender.   Other than higher taxes what are all these millions of people getting  out of this deal except to aid politicians in winning  reelection.

Remember our heritgage.  People came here and built their home with their own hands.  We were individuals and that stalwart attitude toward life with all its joys and trials is what has made us a great nation.   If we lose that “soul” of America then we will diminish as a people.

No one is forced to buy a home. No one is forced to go into the mortgage lending business.   The negative consequences of greed should always be punished the same as punishment should apply for those who broke any laws.   This legislation helps homebuilders, the mortgage lenders, those who buy and sell mortgages, mortgage brokers and the irresponsible homebuyer who bought more than they could afford and no doubt knew they were buying more than they could afford.  

Mortgages are a safe long term investment.  They are not spectacular like Google or Microsoft but you can make a good return on your money if you loan to repsonsible people and loan an amount appropriate to the value of the house.  They pay off like a slot machine for years.   Why else do you think there was such a market for them in the first place.   We have plenty of money in the private sector to fund mortgage lending.  We Americans have over 3 trillion dollars in ready cash in Money Markets and savings accounts right now.   That doesn’t count the trillions additional held by pension funds, unions and private investment houses.  businesses and assets.  Our economy is still the world leader.    Would you rather own assets in Indonesia or the US?   Well, those folks around the world feel exactly the same way.  There are millions more worldwide who love investing in US. Exactly what has a 25 year old done to deserve a $7500.00 tax CREDIT to buy a new house that I didn’t do 35 years ago?  I would have liked a tax credit when I bought my house.   I had to pay 15% down in cash, real money.  It wasn’t easy and there were years when it was a struggle to make the payments.   But I felt like I was in the same boat with everyone else and it seemed fair enough to me.  What is going to be fair about doling out money to people who won’t work long enough and save enough to own their home?   Those people with sub prime loans moved in with no money down.   They had no investment in their home.  Talk about believing in the free lunch concept.

I am afraid this is just another example of how we are becoming a nation of victims and one where no one will accept blame for their own actions.   There are those who even take the position that they don’t want to pay for anything personally but they will let the Government pay for it!   They somehow can’t seem to get the picture that the Government only takes from us.   We blow so many things out of proportion to the delight of the media and the politicians because that sells newspapers and makes people think they need to rely on Government for everything.  Losing to the Nazis or losing the Cold War would have been the end of the world as we know it.  Having our American culture Balkanized would be the end of the world.   Letting Fannie/Freddie fail would not be the end of the world.   Do you want the Government to be in control of mortgage lending with all its rules and regulations and bureaucrats running that vital part of our economy?   I much prefer private entreprise with all its diversity and competition and the choices  it provides to us as consumers.   Think  about your dealings with any branch of the Government.   How flexible have you found it to be?  Did they people at the SSA or the IRS even use common sense when dealing with your problem?   I don’t want people like that making those future loans to my grandchildren.

The politicians have grabbed the tail and sure won’t let go.  It makes for too many wonderful sound bites during a campaign season.   Let’s show them though that the dog still has a bark and a bite when necessary.

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Fannie/Fredie–All Fall Down

It looks like Congress is about to go along with the President and approve some sort of Government bailout of both Fannie and Freddie.   I personally think that is a bad idea for a number of reasons.   These institutions have been around for a long time and were creatures of the Government in the first place.   Fannie goes back to FDR days.   Was it really needed then or over the intervening years?   Do you believe that private entreprise couldn’t have financed the mortgages needed of the last 70 years?  All those Government programs that were started during the Great Depression didn’t really solve the economic woes of that day.   They may have helped but only marginally.   What brought us out of the Depression was WWII.   Talk to the older folks and ask them if they were doing well in 1939 or 1940 and most will tell you no.

Supposedly Fannie/Freddie hold about 5 trillion dollars worth of mortgages.   Surely you have noticed how that estimate has bounced around in the media; I have seen it as high as 9 trillion and as low as 4 trillion.  But whatever the number you must remember that the overwhelming majority of those loans are current.   The borrower is performing and paying off the loan.   If Fannie/Freddie went under “we” would not lose trillions.   The loss would only be for the bad loans.  Yes, it might be a pretty big number but manageable.   Of course if we didn’t do anything then we taxpayers would have no loss at all.  During the Savings and Loan crisis of the late ’80’s we had a lot of them fold and the loss was in the billions but only on the bad loans and most of the loss was due to Government regulators coming in and demanding revaluations of everything with a very implicit threat that the new values had better be lower to justify the actions of the politicians.   Guess what, the values were lower and the losses aggravated.

Does the Government really need to be in the mortgage business?   There is and always has been ample money for mortgages in the private sector.   That mortgage business has to compete for money just like any other business and that is as it should be.   The Government “implicit” guarantee of the business of Fannie/Freddie will now become explict it appears and that will cost all of us money.   It is a private company even though chartered by Congress.   Those investors in Fannie/Freddie knew what they are buying.   I am not excited about anyone having to take a loss but exactly why am I responsible for the private business decisions of others.   If the Government ends up buying stock it will take the majority position and control the companies and then we face a “busines” that is existing to promote the agenda of one party or the other; rather than a company doing what it thinks is best for its shareholders.   Just another variation of Bread and Circuses for the masses is what it will become.

If you have dealt with the IRS, SSA, HUD or any other Government agency, can you just imagine having to go to a Government office when you have issues with your mortgage, take a number, and then findly meet with  a low level bureaucrat who is more interested in watching the clock than offering a service.  After all they can’t be fired as a practical matter.

If they did fail please think through what the actual results would be as opposed to the alarums of the Politicians.  Their assets would be liquidated.   There would be buyers who would want to get that stream of income from all those millions of performing loans.  The shareholders would lose.  They made a bad bet.   The average Joe who remains  current on his mortgage would not notice any difference except  maybe a new place to make his payment and a new holder of his mortgage note.   The failure of Fannie/Freddie would not “cause” a  foreclosure crisis.   Don’t believe that for one minute.  That is pure balderdash.   If the note is paid there is no foreclosure.    Yes the mortgage market might well be smaller for a couple years but that is the offset to the thousands of imprudent loans made earlier and those shaky subprime notes bought by Fannie/Freddie.  They didn’t have to buy those notes.  Our economic well being is best served by prudent business decisions made by both the consumers and the businesses serving them.   Bailing out Fannie/Freddie does not promote those  good  decisions.  It encourages people to make unsound decisions and rely on Mother Government to fix everything if things don’t go well.   Failure is not always a bad thing.  Hell, it is the cornerstone  of Darwinian theory.

Most importantly it would send the right message to the market place and the buying public.  I don’t like Socialism in any of its forms whether for business or the masses.   It brings a loss of individual freedom as its price.  Your options are reeduced in any area that is dominated by the Government.  I don’t want the Government to have a monopoly on the mortgage business.

“Stand Tall”, my mom  used to say that to me  when I was a boy and teen.   Those two words carry more than one message and all of them are worth heeding.     First, it is good for your body as my mom said.  Secondly, it evokes the right attitude toward difficulties we face in life.  No matter the problem or  how low we feel about them we must and should stand tall.   Think about the alternative.  It implies being a good soldier and “soldiering on” in the face of adversity.  Lastly, it means to be a good person with dignity and integrity.   All those messages were worth hearing.  Thanks Mom.

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Filed under Economics, government, Politics