Just after Election Day last year, with Obama and the Democrats soon to take control of Washington, people from all over hailed this achievement as a turning of the page. Soon to be gone was the excess known as the Dubya administration. Sanity was to return to the capitol beltway. The chorus sang, "We now have people on OUR side".
Gee, could have fooled me! Since taking office, the new people look an awful bunch like the old people. Trillions of dollars are flowing in the halls of big finance, while millions of people who voted for regime change aren't even being thrown a few bare crumbs. With "friends" like these, who needs enemies?
Congress Pushing Covert Bailout to Save Big Finance and Screw Homeowners
By Zach Carter, AlterNet. Posted April 9, 2009
U.S. policymakers just dealt struggling homeowners another devastating financial blow by helping Wall Street banks cook the books on their mortgages.
The real outrage, however, is that federal policymakers know the strategy they're adopting screws borrowers: they did the same thing in the 1980s to save banks from overwhelming losses on loans they'd made to developing nations, with horrific consequences for the global economy.
Under intense pressure from Congress and the banking lobby, regulators have approved a new accounting rule that allows banks leeway to value troubled mortgages and debt-backed securities at inflated prices. Banks typically have to value these assets at market prices: the amount investors might pay for them.
But with the U.S. economy fighting for life under a mountain of foreclosures, investors have figured out that these loans -- and the byzantine securities into which they were "sliced and diced" -- are not actually worth very much. As a result, nobody is buying them; their "market" has disappeared.
So the banks now insist that hundreds of billions of dollars in debt-backed securities are not really worthless predatory garbage but merely assets being unfairly scorned by the trading markets. Their bargain-basement prices are artificially low.
So Big Finance has persuaded Congress and regulators to allow them to use secret proprietary "models" the banks own to assign values to these "toxic assets" without having to justify those numbers with concrete market information.
"The market would demonstrate that the value of these assets is much, much lower than what they've already got on the books," says Duke University Economics Professor William Darity. But once the new rules take effect, big losses on absurd mortgages will magically disappear with the stroke of a pen.
If that sounds like a back-door bailout, rest assured: it is. Even worse, it will actually hurt homeowners facing foreclosure. Allowing banks to use magical valuation models eliminates the incentives for them to modify loans that can't be repaid -- loan modifications that might enable families hit hard by this recession to stay in their homes.
Instead of encouraging banks to cut their losses by reducing the amount borrowers owe on their mortgages, regulators are giving them every reason to refuse to negotiate with their customers.
This is exactly what happened in the foreign debt crisis of the 1980s...
Gee, could have fooled me! Since taking office, the new people look an awful bunch like the old people. Trillions of dollars are flowing in the halls of big finance, while millions of people who voted for regime change aren't even being thrown a few bare crumbs. With "friends" like these, who needs enemies?
Congress Pushing Covert Bailout to Save Big Finance and Screw Homeowners
By Zach Carter, AlterNet. Posted April 9, 2009
U.S. policymakers just dealt struggling homeowners another devastating financial blow by helping Wall Street banks cook the books on their mortgages.
The real outrage, however, is that federal policymakers know the strategy they're adopting screws borrowers: they did the same thing in the 1980s to save banks from overwhelming losses on loans they'd made to developing nations, with horrific consequences for the global economy.
Under intense pressure from Congress and the banking lobby, regulators have approved a new accounting rule that allows banks leeway to value troubled mortgages and debt-backed securities at inflated prices. Banks typically have to value these assets at market prices: the amount investors might pay for them.
But with the U.S. economy fighting for life under a mountain of foreclosures, investors have figured out that these loans -- and the byzantine securities into which they were "sliced and diced" -- are not actually worth very much. As a result, nobody is buying them; their "market" has disappeared.
So the banks now insist that hundreds of billions of dollars in debt-backed securities are not really worthless predatory garbage but merely assets being unfairly scorned by the trading markets. Their bargain-basement prices are artificially low.
So Big Finance has persuaded Congress and regulators to allow them to use secret proprietary "models" the banks own to assign values to these "toxic assets" without having to justify those numbers with concrete market information.
"The market would demonstrate that the value of these assets is much, much lower than what they've already got on the books," says Duke University Economics Professor William Darity. But once the new rules take effect, big losses on absurd mortgages will magically disappear with the stroke of a pen.
If that sounds like a back-door bailout, rest assured: it is. Even worse, it will actually hurt homeowners facing foreclosure. Allowing banks to use magical valuation models eliminates the incentives for them to modify loans that can't be repaid -- loan modifications that might enable families hit hard by this recession to stay in their homes.
Instead of encouraging banks to cut their losses by reducing the amount borrowers owe on their mortgages, regulators are giving them every reason to refuse to negotiate with their customers.
This is exactly what happened in the foreign debt crisis of the 1980s...
HI-
ReplyDeleteIam SO impressed by your ability to 'explain' an otherwise unexplainable tragedy. I clearly do not have such skill to do that - I do however have two recent expereinces that give credence to your facts on a very personal "Mail Street" way.
1 - I have one credit card - Capital One. My "Fixed rate" is 7.99 % according to the terms of my original contract over 5 years ago. I have NEVER been late on any payment or missed a payment. I received notice that my interest rate is being increased to 19.99% with a variable up to 24.9%. I was told that this is due to "hard economic times for the bank"!! What? I have contacted the banking commission and even wrote to the President. Tragically, the bank can do whatever it wants regardless of my good credit history so long as they put their increase in writing. What? Why can't I put a change I choose, in writing then, as well.
2 - We have an FHA mortgage we called our Mortgage holder to try and get a lower interest rate given the ads about the "FHA money supposedly available to homeowners. Well, to do so, they are charging $8000.00, yes eight thousand dollars in closing costs. What?
So from our little piece of Main Street we are not getting any benefit from the alleged "for the people" jargen that was promised.
Thanks for explaining it so clearly.
Struggling in Connecticut
Gail
Gail,
ReplyDeleteOh my gosh. It's even worse than I thought! One would think that, after hearing numerous personal stories like these, our elected reps would realize many of their policies and regulations are hurting the people who helped elect them.
The sad part is, however, that they simply don't care! It's been shown time and again that helping average Americans is nothing more than campaign rhetoric. You say what the masses want to hear to dupe them into voting for you. Once in office, you reward your big campaign contributors, not run-of-the-mill voters.
Hi again-
ReplyDeleteIt is REALLY awful. And you are right, the powers at be don't give a crap! Throw in, I am on disability which much to my dismay our government taxes!!! I find it mind boggling that our government taxes my already diminished earning power. And when I see all those bonuses and and bailouts mis-used, grrrrrrrrrrrrrrrrrrr........
We live quite simply here - I work hard, albeit part time due to my having M S, my husband works 55 hours a week - and don't get me started on what my necessary medication costs and the hoops I have to jump through to get them approved by my insurance!! grrrrrrr.....
ANd still RT, we hang tough, we laugh every day, and play our music, and love our family, and share what we have - despite the injustice that surrounds us all.
Gail
peace, and love and all that jazz
What's sad to me is that people thought it would be TRULY different. Oh...we'll see fewer people dying in foreign wars, over time, probably, but Americans don't seem to understand the campaign/election process, or who is running the government.
ReplyDeleteIt takes people to run the government. Since the American public decided they didn't want to take the time out from their busy lives to take part, someone had to. That would be the leaders of corporate America. This is, actually, a capitalist plutocracy, not a democracy. And until we get involved and change the system, its not likely to change much. Einstein said doing the same thing over and over again and expecting it to be different was a definition of insanity. That's what we keep doing. As long as we are electing people from either major party, things won't change. They were bought and paid for long ago. Its how they got to where they are. They DO represent their constituency. But you aren't it and neither am I...at least right now.