How to fix the mortgage crisis
Recriminations are ineffective when looking for solutions. Remembering and being watchful are warranted when forging forward though this morass of insolvent debtors.
Too big to fail comes to mind as a warning call that too few are controlling too much, to the detriment of many. These huge ‘lending institutions’ should be disbanded in favor of regional banks. The business model of selling mortgage derivatives and living off the commissions is a failure because it produces nothing.
Mortgage securities bundled and sold make the process of lending into a commodity.
Solve the foreclosure crisis by identifying all the foreclosures in any given area X, assign foreclosures to regional banks located in area X, subsidize new loans to qualified buyers or forclosees for the properties, and the regional banks holding the new mortgages will also manage the collections for these mortgages. Close the books for a percentage return on the subsidy, shared with the bank until the subsidy is paid.
Of course, the powers that be will fiercely defend mortgage derivatives as a logical outgrowth of the old mortgage business that made money by collecting interest on loans made and collected locally. The mortgage business evolved to make land more valuable and to enable citizens to buy land. The mortgage business provides for a need in our society, and should not become a pawn in an easy money policy that enables profit taking and debt spawning for nothing produced.
My suggestion is that mortgage derivatives be outlawed and any instrument using them be declared invalid due to the outlandish methods used to assemble these bundles. Arrests are imminent and I see these bundles are illegal, beginning with the original properties sold to unqualified buyers, inflated appraisals based on a developer-lender-appraiser monopolies, bundled securities given unresearched bogus high ratings by more appraisers, insiders at the SEC turning their heads, fund managers on the lam and no doubt more illegal possibilities.
If foreign governments are holding these bogus derivatives, they bought an illegal ‘product’. Using the generation of mortgages as a commodity is a failed business model that should be outlawed. We need to take care of our own people and handle this real estate overproduction and overpricing in our communities. Work with regional banks, regional foreclosures and regional management of mortgages. Allow the real estate prices to drop until people can afford to buy.
Forget bailing out these huge lenders. Clean the temple of the moneylenders and allow a new regional based banking system to resurface. Too big to fail might really mean too big to succeed.
Wednesday, January 21, 2009
Wednesday, December 31, 2008
Friday, December 12, 2008
Wednesday, December 03, 2008
More Bailouts
So the bailout proceeds without oversight. What else is new?
How about more criminal investigations of the SEC and securities appraisers? Investigate the SEC and the securities ratings services and a lack of competition.
Will the bailouts prop up prices? Will that help the little guy? What will help the smallholders?
Assumptions about future financial situations should be absent from mortgage arrangements, which would void any ARM contracts in favor of the teaser rate. Avoiding raising the ARMS is an aim of low interest rates, which leaves depositors taking the low interest rate hit. How about lowering the price instead of the interest rates? More sales would result, while maintaining a reasonable rate of return for depositors. Lowering prices would be more beneficial to more people than lowering interest rates.
Of course, lowering prices would create more upside down debt, where people owe more than the goods they bought with borrowed money are worth. It is safe to say that this posited situation of lower prices for real estate and goods would benefit more people than those who indebted themselves. Fair interest rates for depositors would raise the level of deposits, regaining real capital.
If the people running things profit from higher prices at the expense of most of the rest of us, policy reviews are in order.
Engineered inflation and constant growth are untenable positions in a finite world. Cancel the construction and sale of debt based securities, as they produce nothing of real value, only taxpayer supported gambling debt.
Let Las Vegas handle the gambling.
How about more criminal investigations of the SEC and securities appraisers? Investigate the SEC and the securities ratings services and a lack of competition.
Will the bailouts prop up prices? Will that help the little guy? What will help the smallholders?
Assumptions about future financial situations should be absent from mortgage arrangements, which would void any ARM contracts in favor of the teaser rate. Avoiding raising the ARMS is an aim of low interest rates, which leaves depositors taking the low interest rate hit. How about lowering the price instead of the interest rates? More sales would result, while maintaining a reasonable rate of return for depositors. Lowering prices would be more beneficial to more people than lowering interest rates.
Of course, lowering prices would create more upside down debt, where people owe more than the goods they bought with borrowed money are worth. It is safe to say that this posited situation of lower prices for real estate and goods would benefit more people than those who indebted themselves. Fair interest rates for depositors would raise the level of deposits, regaining real capital.
If the people running things profit from higher prices at the expense of most of the rest of us, policy reviews are in order.
Engineered inflation and constant growth are untenable positions in a finite world. Cancel the construction and sale of debt based securities, as they produce nothing of real value, only taxpayer supported gambling debt.
Let Las Vegas handle the gambling.
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