(Poll of real estate investors near the bottom of this post…)
The economy of the United States is at its best when most free. The government is at its best (economically) when it guarantees transparency and accuracy and is otherwise uninvolved.
Unfortunately, neither of these are the case at present.
The U.S. economy has been hamstrung by insanely foolish regulation for many years now, much of which originated as a ridiculous attempt to control the free market subsequent to the Great Depression.
It didn’t work then. It’s not working now. And it will never work in the future.
I’ll have some very specific pieces of evidence to share with you regarding the genesis and development of this situation. But in the mean time, please participate in this completely anonymous poll:
Loading ...Also, here’s a question for discussion: Why has there been such a strong public outcry against the $700 Billion bailout plan? (This morning, I heard two congressmen give statistics about the amount of constituent communications they are receiving about this: One congressman said he’s receiving emails 50 to 1 AGAINST the bill. Another said his ratio is 300 to 1 AGAINST the bailout bill.) Why do you think that the most vocal supporters are politicians and the most vocal opponents are normal citizens?
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** Why has there been such a strong public outcry against the $700 Billion bailout plan? **
Because the average citizen doesn’t understand what’s going on TODAY in the “shadow banking system.”
***
One of the real reasons these and thousands of other good bonds are not selling now is that there is real panic in the markets. The oldest money market fund “broke the buck” last week, because they had exposure to Lehman Brothers bonds. We are seeing massive flights of capital from money market funds, including by large institutions concerned about their capital. What are they buying? Short-term Treasury bills. Three-month Treasury bills are down to 0.84%.
It gets worse. Last week one-month Treasury bills were paying a negative 1%!!! That means some buyers were so panicked that they were willing to buy a bond for $1 that promised to pay them back only $.99 in just one month. The rate is at 0.16% today. If something is not done this weekend, it could go a lot lower over the next few days. That is panic.
I don’t want to name names, as this letter goes to about 1.5 million people and I don’t want to make problems for some fine banking names; but there is a silent bank run going on. There are no lines in the street, but it is a run nevertheless. It is large investment funds and corporations quietly pulling their money from some of the best banks in the country. They can do this simply by pushing a button. We are watching deposit bases fall. It does not take long. Lehman saw $400 billion go in just a few months this summer. Think about that number. Any whiff of a problem and an institution that is otherwise sound could be brought low in a matter of weeks. And the FDIC could end up with a large loss that seemed to have come from out of nowhere.
http://www.2000wave.com/article.asp?id=mwo092608
Your poll is overwhelmingly in favor of NO BAILOUT, yet NONE of the naysayers has yet proffered an intelligent alternative that indicates they know anything at all about the world banking system.
Don’t worry, it’s coming. In the mean time, I’ll continue to let comments stack up here from those who are under the impression that credit is a right rather than a privilege. — Bryan Ellis
Maybe public opinion is like mine- that these banks should reap what they sow! Credit is a privelege but the banks and lenders have treated customers so shabbily, let alone us investors. Lenders have been predatory in many instances and want their cake and to eat it too. I have been trying to close a couple of short sales where I have thru my own efforts gone out and gotten an end buyer who is willing to pay more than what I can buy it on short sale. But because of the lenders wanting ALL the money in a deal, I am hamstrung on the one side by lenders controlling all $ in the deal to the extent that they are cutting commissions when I am bringing them a deal and working 10x as hard to get the short sale done as compared to a straight deal w/ no lender approval needed. On the other side of the deal, I cannot make a spread since the end buyer’s lender has seasoning requirements that preclude me buying and selling prior to holding for at least 90 days. The lenders however, hava gotten a waiver from FHA to allow them to sell without the 90 day seasoning- what about us investors or anyone else for that matter. The lenders have a lobby but we don’t- whatever happened to equal treatment under the law? I just feel that the lenders should reap what they sow and let them deal with their problems and work things out in a capitalistic way.
The above comments make me so mad I think I’m going to blow up–a complete and utter misunderstanding of business and the credit markets ensues.
Straighten us out, Caitlyn! — Bryan Ellis
The public is right on about the bailout. Let’s really look at the kitchen table:
1. High energy costs
2. High unsecured credit lines
3. Two income families not able to make ends meet
4. More older Americans working just to survive
5. College graduates graduate with debt but low income to support debt
6. High taxes on the middle class. Double taxes on business.
7. Health care costs rising faster than inflation or wages
8. Housing rose faster then wages.
9. No more credit is available for the American Family. Because the income to debt ratio is maxed at 65% while the remainder is taxes.
9. No bailout for the American Family.
NO bailout for the Banking system - because the Central Bank as we are told is an Independent Authority for our Money Supply.
So where does this leave the American Family? Well, $700 billion can immediately go to the pockets of the American Family and “trickle up economics is born”. So, who cares if my mortgage get’s called. My pocket is about to lined with the $150,000 cash rebate from the American Government!
The credit market should correct. A squeeze must take place. There is no more credit for Tom, Dick or Harry. Banks should call Mortgage loans. This must take place for a true free market.
We are after all a Country lead by conservative principals right? I mean, come on, our Country wants less Government, right?
Give me break.
No Welfare for Wealthy corporations. None. It’s smart to stay away from Oligarchy and stick to democracy in it’s purest form.
Why is Caitlyn so upset? Do you think she would send me most of the money in her wallet so I can spend it on bad loans? Why would she think the rest of us should send our wallets to Washington to do the same? Bad math, and even most of us “little people” can see that. Just plain bad math. The strong will survive, and the American people as a whole are stronger than the banks and the government. Have we forgot this? Have her look up some of “Robert Ringers” newsletter ramblings for some insights to reality. P.S. My wallet offer still stands Caitlyn.
Well…my own personal credit is shot. Soz…
I’ll just have to wholesale until I can shortsale…
And then shortsale until I can buy a Benz.
And if credit is still tight by then - and mine hasn’t improved
as much as my income…
I’ll just have to pay Cash for a Camaro ~(teh new, 2010
Camaro that is on its magnificent way from Chevrolet)
Oh…cry me a river… ^^
Why is the public against the bailout?…Even a 5 year old knows that you don’t take good money and buy bad lemonade and hope it tastes better with time…
Her eis the solution: Repeal the CRA [what caused most of this problem] AND implement Former Speaker Newt Gingrich’s plan.
The problem with the way most people think is that the ship is sinking. Now is not the time to try to figure out WHY it’s sinking. It just is. After the ship has been relieved of its excessive water, we can all go back and figure out why it sank in the first place and correct those things.
The system is what it is AT THIS TIME. It needs to be fixed, to be sure, but it can’t be fixed if it ends up at the bottom of the ocean. By then it will be too late. It’s easy to say, “let ‘em fail!” when there is no full understanding of what “fail” means.
If you think you don’t like the water in the boat now, just wait until there’s nothing but water. Then you’ll say, “$700 billion? Why didn’t we spend it?”
BTW, the CRA is NOT the cause of most of the problems. They were full doc loans, not the exotic products that are, in fact, causing most of the problems. CRA loans were/are only a minor sliver of the number of loans in default. Please, you who know nothing about CRA loans, don’t comment on them.
I’m going to have to bow out of this conversation, because if I begin to explain loan structures, I’ll be doing nothing else. I see so much ignorance (lack of knowledge) here, it’s making me ill.
Someone else wrote this, so I didn’t have to spend a single minute on articulating it. But it’s as concise as I can find re what’s happening. Read it ‘n weep; then write to your representatives and urge them to vote “yes” on the Emergency Economic Stabilization Act of 2008.
Whatever the political posturing, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of “toxic” mortgages. This has a lot to do with FASB 157, also known as “mark to market”.
Each day lenders must mark their assets to the marketplace. It’s like you having to appraise your home every day. If your neighbor was under duress because he became ill, divorced, lost his job and was forced to sell his home quickly, he may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you’re not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But “mark to market” does not allow for this, which creates a vicious cycle.
Why is this so bad? Because as lenders mark down their assets the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But if they take a paper write down of $500,000 due to “mark to market” requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500,000 after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1, this bank is viewed as a risky investment. So the stock price starts to tank, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio…at cheap prices. And this makes the vicious cycle continue.
A quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages are relatively safe, but this requires a bit of understanding. When a pool of mortgage loans is put together it isn’t just A paper or B paper etc. It’s everything. It’s got some A paper, B paper, C paper, and even what looks like toilet paper. An “A” investor buys the whole pool but because they are an “A” investor their safety is greater because they can avoid the first 20% (as an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors are willing to take, the higher the return. So the investments are relatively safe, but accounting rules currently place undue pressure on banking institutions.
Now add to all this the opportunistic shorting done on financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting the financial sector. As for the so called bailout plan, the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posturing from both sides is just part of the process.
This is not easy to understand for the general public. In fact, most politicians don’t get it, either. That’s why it’s a difficult yet critical bill for them to vote on and pass.
Once this is done, it will take some time but the markets will stabilize. As for the mortgage industry, it will take a bit of time. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to fix the mortgage industry.
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