Dear Washington – A Real Plan For You

Posted on September 26th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Bill King, whose foresight I rely upon for my personal financial well-being, and who I quote in the blog often has put forth a plan worth serious consideration. Please get this to your representative in Washington…they need all the help they can get.  -Best Mr Mortgage

King Report Bailout Plan


  • The US credit system is broken.
  • The Paulsen-Bernanke Bailout Plan does not insure that those banks and brokers that receive bailout aid will increase lending.  The reality is the market is hoarding liquidity and these banks are likely to do the same.  More importantly consumer lending has been a small, often insignificant part of their business.  They made money by trading and through securitization of debt.
  • It is necessary to create a new system parallel with the existing dysfunctional system in order to mitigate the inevitable economic and financial damage and to facilitate, as seamless as possible, the transition to a functioning financial system or new model of credit and banking.
  • The Wall Street model, securitization and extreme leverage, is obsolete.
  • US financial institutions need to recapitalize.
  • Hank and Ben assert that it is paramount to keep credit flowing to consumers; the bail out is a necessary adjunct.
  • Paulsen and Hank’s bailout plan is tantamount to bailing out Univac, Digital Equipment, etc, in the eighties, which would’ve retarded the development of Dell, Microsoft, Intel and other nascent technology companies. 
  • It’s wasteful & foolish to put more money in an obsolete non-functioning system
  • Big banks and brokers made most of their earnings over the past several years in trading, not consumer lending.  And now their derivatives are THE problem
  • If you want to get money to the consumer: the less middlemen, the better.
  • Decentralization of liquidity, lending and risk is necessary to refurbish the financial system.  The illiquidity of a few large banks is collapsing the system. 

Basics of the King Report Bailout Plan

  • Directly recapitalize banks by the US government allocating $500B into a plan for community-type banks to increase their capital in partnership with the government.
  • The government would match existing or some percentage of existing bank capital.  If it would be better, a separate bank could be created.  Place a limit of say $1B per bank.
  • This would create $5 trillion of credit at conservative 10 to 1 leverage.  This is more than the entire private mortgage market.  It is a much better use of capital instead of absorbing $700B of losses with no means to discern resultant credit creation.
  • Give the banks a tax rate of 15% on consumer and commercial lending for 5 years and the right to buy out the government share of the operation at some premium.
  • Only banks that meet some metric, like a Texas Ratio of 50, are eligible.
  • To help the big banks, allow them to create a consumer & commercial lending facility with the 15% tax rate benefit.  This should entice private equity and sovereign funds as well as Wall Street remuneration that was garnered over the past decade or so.
  • Prohibit trading, especially derivatives, in consumer & Commercial lending operations.  However pure hedging would be allowed.
  • Immediately increase FDIC-insured bank deposits and money funds to $1 million per eligible account.

Further considerations:

  • Foreign banks in the US could be included if they have respective funding from their government.
  • The real estate problem is due to the fact that American incomes do NOT support current prices.  Easy credit allowed them to purchase homes they couldn’t afford.
  • Any solution to clear the real estate market must entail hiking income, which is very difficult, or allowing prices to drop to levels that the average American can support.  This helps average Americans, not the big banks and investors stuck with overpriced mortgages.
  • No bailout for the imprudent and reckless but a means to directly help Americans and procure capital from private and sovereign sources because a new financial system must be implemented.
  • This is not likely to be the final model but it is a stop-gap measure that will resonate with average Americans.  It’s a way to connect with Middle America because it benefits them directly and is not an exclusive Wall Street bailout.
  • The cause of our current financial morass is Big Government + Big Business = Crony Capitalism + Funny Money = concentration of wealth and risk + declining US living standards.
  • The solution is decentralization of the financial system, like the tech industry, which will lower systemic risk, foster competition and yield better ideas, services and companies.


Sen. William Proxmire to Alan Greenspan at Al’s confirmation hearing: “[Y]ou think, if we erected Chinese walls, you can still merge banking and commerce.  And that shocks this Senator, and I think it should shock many others. You, in my judgment, favor an increased concentration of banking…


            [Y]ou can’t have competition without having a large number of banks, as many banks as possible competing in every banking market. Do you have a conviction that regulators, no matter how able, cannot do the job as effectively and efficiently as competition? I hope as chairman you can show us this…


It seems to me that banking in this country and finance in this country is likely to move very sharply… in the direction of concentration….I think most senators, if they thought very long about it, might be very concerned too. And I think the American people would be concerned too.


37 Responses to “Dear Washington – A Real Plan For You”

  1. If this was an issue of liquidity, your plan could work. Unfortunately, this is an issue of solvency. If a bank has $5B of bad loans and they only have $1B in reserves, they won’t use the additional funds to create new loans. They will use it to shore up their reserves. That’s precisely what’s happening now. The Fed is providing Billion$ but the banks aren’t lending. Even the well capitalized institutions are hoarding cash.I applaud your thinking but throwing good money after bad is not working. Hopefully, the bailout plan will bail out the right people…

  2. You know Mr. M. there is something to be said for the old 20% down 30 year fixed mortgage. The bank has enough cushion that they can foreclose without cost to the depositors of the bank and putting the bank at risk on the loan. Then there is the fact that the borrower has sufficient risk up front so as not to walk.

    If we are going to live in a society that has a strong banking system, then we need to start with strong loans. On the one hand we can complain about this being a drawback into getting a buyer into a home but on the flip side, it would keep prices in check and by that token, more affordable from a price standpoint.

    Such thought would not likely sit well with Mortgage Brokers who like to have an array of products to offer to match a deal.

    Nor would it likely set well with real estate sales folks that like big commissions based on larger deals.

    At the same time, we cannot have competing vehicles for housing finance that rob business from the banks and put them in the position of cutting standards to keep business.

    OK, everybody flame me now…

  3. No flame here buddy –

    To quote: “Directly recapitalize banks by the US government allocating $500B into a plan for community-type banks to increase their capital in partnership with the government.”

    You have to love these terms: ‘Recapitalize’…

    ‘Allocating $500B into a plan”? Isn’t that neat? Just change the words around a little and – poof! it’s all harmless, well & good.

    ‘Recapitalize by the government allocating’ means: Printing money. It means: Inflation. It means: Your purchasing power just got lowered a degree – or two, or three.

    “In partnership with the government”? Do you know what the definition of that is? Well, if you’re under 50 and have a public education along with a host of bearded, balding socialist professors from college – well, I can understand. But just in case you don’t… That is the textbook definition of FASCISM.

    What in the MFH is going on here?

    Government IS the PROBLEM. Not the SOLUTION. If the people don’t have the collective BALLS to let this thing ‘implode’ (Mr. Mortgage…?), then you might as well sign up as a Neo-Bolshevik right here & now, because that is the logical extension of letting government have the power to backstop this problem.

    I cannot believe this! I mean, I’ll give the guy credit (Mr. King) for trying his best to come up with a ‘solution’ – but Dude, the solution is not some unholy alliance between the banks and government. Quite actually, it is a proposal to keep the status quo going, for sake of what – or who?


    You know, all the B.S. and convoluted schemes to patch this sinking ship aside, in the end you gotta ask yourself one simple question:

    Do you want Liberty? Do you even know WTF Liberty is, or means? Do you even care?

    Because if you do, the very last thing you will want, is for a patchwork quilt of ill-conceived private/government band-aids to put this broken humpty back together. It needs to Die. And Die Hard, so that our kids can learn by our mistakes and never have to repeat them – or worse, be saddled with their after-effects, long after we’re pushing stink weed.

    Peace –


  4. WOW, CC that was as pure as the highest spring from the first snowmelt of the source for the Colorado river.

  5. My solution? EVERYONE who refinanced or got a first mortgage in the last three years files for mortgage rescission NOW.

    Why this will work: on balance, the same shoddy workmanship that permitted so many sub-prime mortgages also allowed many more “prime” mortgages to slip through the cracks. It only takes a $35 difference between the Good Faith and the HUD-1 for a mortgage to be considered Federally fraudulent: check your documents and read everything on then ACT NOW.

    The principle behind this action: the banking industry has betrayed America’s trust by literally seizing our homes through fraud (-ulent mortgage practices) and then selling these fraudulent “assets” to Wall Street, who conspired in the process by reselling the fraudulent mortgage bundles to investors in a manner that can’t be traced back to the original underlying asset. This leaves homeowners “without any option” according to the press, but we DO have options: take back our homes. We CAN do this, both on principle and legally. Case law is already being written in support of this action. THERE IS NO REASON THAT WE TAXPAYERS OUGHT TO PAY FOR BAILING OUT THE SAME INSTITUTIONS THAT DEFRAUDED US IN THE FIRST PLACE.

  6. Here is a real idea:

    The banks speculated using 40:1 leverage on top of deposit and lost and died. The little guy now owns his home free and clear.

    It isn’t an idea, it is the law.

  7. I am a 20 year mortgage industry veteran who in 2006, sold all my California real estate holdings then quietly exited the mortgage industry. I really, really, miss the old days in the industry.

    My expertise had been the start up, founders capitalization, expansion, and packaging of small mortgage banking operations for IPO or private sale to larger suitors. Up until the repeal of Glass/Steagall the capital flows into ‘non-conventional’ lending had been relatively in line with market demand and product availability. However, after Gramm-Leach-Bliley the flood gates opened. US dollar reserves that had been lost to overseas job markets such as China, found their way back to US shores vis-a-vis sub-prime mortgage backed backed securities. I personally witnessed the inflow of such ungodly amounts of money from Wall Street in the form of capital and warehouse lines all of it into the hands of some of the biggest nitwits I’d ever seen at the helm of major lending operations. It virtually changed my life. No longer was I able to build models focused on diverse sound lending practices but rather, the ‘lend short on the expectation of perpetual asset appreciation’ model became the darling of the industry. And I became a relic. In the end, everybody got duped by their own naivety.

    This first round of official bailout is exactly that, the first round. The Fed’s already pumped about $700 billion into the banking system so far through the new term facilities and other direct and indirect intervention. The new bailout bill will surely exceed the additional $700 billion they’re selling to congress. The total bill will easily get over $3 trillion in the end.

    You see, here’s the deal – you can’t sell the Chinese, or the OPEC nations, or any other foreign bank or investor MBS all with AAA ratings then have the whole thing go bad and just tell them all to go screw themselves. The world doesn’t work like that. The Chinese could crush our dollar right now. All foreign investment in the US could dry up overnight. Then we would all know what the rest of the world already knows – the US Treasury is bankrupt.

    So the bailout has to go on. The non-performing assets must be moved from the balance sheets of private banks and onto the US Treasury’s so taxpayers can get on with paying back the Chinese, the Saudis, the UAE, whoever…

    The only hope the US Treasury has of ever recovering these obligations is to physically go into the real estate business. They will need to create an RTC, of which I consulted for in the late eighties, whose model is not to liquidate, but to act as a sovereign mortgage lender of sorts wherein repossessed homes are sold to qualified home buyers with the mortgage payments being repaid into the US Treasury. Equity share agreements could also be used wherein the proportionate capital gains down the road in the event of a sale got distributed accordingly between buyer and Treasury. I’ve run some rough numbers and the math actually works.

    The bailout is going to happen. All that bad paper, or REO property, is going to be handed over to Treasury. The issue is how to get money back to taxpayers.

    Hold onto to your seats. And Godspeed.

  8. Levering up the system again in order to inflate prices…again. That is his brilliant plan?

  9. Who said anything about levering up the system again? Prices need to correct to pre-2000 levels or fall in line with median incomes relative to each geographic market. Don’t you realize that nearly all ‘move-up’ equity is gone? Or that our savings rate is negative? Any new RTC needs to get in the business of holding assets (as a mortgagee and servicer) and by virtue of ‘shared equity’ the speculative motivation of a buyer under a program such as this would be diminished as their proportionate gain if they sold a home ten years down the road would be limited to the actual amount of principal they contributed (as in their principal and interest payment) plus their percentage of overall capital gain relative to their principal contribution. The math is simple. If they put down 3% and paid down 10% in principal – they would be entitled to a 13% base base on any capital gain. Futhermore, an additional ‘fair’ allocation would need to be set relative to the buyers contribution in upkeep expenses, improvements (if documented) and a ratio relative to ‘dollar depreciation’ on the interest charges paid over time. Again, the math could be relatively simple and handled on any HUD at the time a payoff demand was requested.

    I watched in horror as the real estate bubble inflated. My friends and business associates ridiculed me for my views on the matter. Hindsight is 20/20 though and I have since been vindicated.

    Don’t think in terms of re-inflating a bubble, but creating a level playing field again at fair market value.

  10. CC, wow that is the most!

    Protzmann, we are one month over three years. Too late?

    Painless, I like your way of thinking. The odds of that happening are higher than getting struck by lightning twice, in the same spot.

    I am so totally against this stupid bailout, and furious that “our” government would even consider doing it, without asking we, THE PEOPLE, if it is okay. Whatever happened to government by the people, for the people???
    But what can a little guy like me do? Answer all the polls I can find. Send e-mails to certain congressman and senators, most likely that they will never see, some aid will toss it in the trash can.
    I hope it does not pass, that the republicans stand tall and proud and defeat this thing.

  11. People.

    We are facing issues beyond a financial collapse. Clearly, Bush et. al. are not very interested in hearing from academics or other “experts”. I believe they are going to do their best to conceal the rampant fraud and attempt to avoid a conflict with foreign countries/investors. Most of the money will be spent bailing out everyone other than those who will be stuck with the bill.

    These crooks have not only destroyed our financial system they have jeopardized our nation’s security by all their fraud and deception.

    Although we have slowed the plan it will most likely happen. The next step is to demand prosecutions and make certain the plan is implemented correctly. We should begin by removing Paulson from office.

  12. JAllen Radio – “Is this sucker going down?” (Light humor)

    JAllen: Tonight we are discussing “Is this sucker going down, or not?” I’m back today with my usual distinguished guests, Mike Shedlock (Mish), Mr. Mortgage, Patrick of and Nouriel Roubini (hisssss!). Patrick, we start with you. Is the sucker going down, or not?

    Patrick: Of course, as the sucker goes down to come into line with tighter lending and stagnant salaries, anyone who buys now will suffer losses immediately.

    Mish: Me thinks not. It’s time to Take Back this Sucker from those who want this sucker to go down at taxpayer expense. Please keep phoning and faxing.

    JAllen: Mr. Mortgage, what do you think?

    Mr. Mortgage: Any sucker going down will add a large amount of inventory to an already pounded market in the West Coast. This will be caused by Meredith Whitney scaring the crap out of everyone.

    Roubini: I have been predicting the downing of this socialist sucker since 2001. It is a disgrace that no professional economist was consulted by Congress. Yes, I predict this sucker could very well go down…especially if money isn’t loosened up.

    JAllen: We have a SURPRISE guest, former governor of NY, Eliot Spitzer. Governor, what’s your take?

    Spitzer: I’ve already paid too much for too many suckers going down.

    JAllen: Well, there you have it.

  13. Well, Mr. Mortgage, I am a little disappointed.


    You have done an excellent job in pointing out the scale and timing of the devolution of the housing bubble, and it’s financial impacts. The best available. And I am thankful.

    But you have never addressed the cause of the bubble itself.

    The cause of the housing bubble does not relate to the lending practices of the bankers, at any level.

    These lending practices were a sympton of monetary inflation, that was, in turn, a manifestation of the “excess” of the nation’s debt-money system.

    They did it because they didn’t have any choice. No commercial bank can have “unproductive” reserve levels (read, MAKE MORE LOANS), and no investment bank can fail to pursue its maximum leveraged position if it is to appear competitive. Primarily because everyone else was doing it. Result: over-expansion of debt. Too much debt out there securing too little real productive economic resources.

    Unlike CC who for some reason places the blame on government, the private banking system in this country, created too much debt, a.k.a. “leverage”, given the actual underlying productive quality of the US economy.

    As we enter this contraction phase of good old free market capitalism, we are beginning to feel the effects of debt-deflation. There is much more to come.

    Guess what, MM, and CC, we can not buy our way out of this debt-deflation phenomena by increasing debt, of any kind, no matter what you may call it.

    Harken back to Bretton Woods for a moment. All of the so-called free-world, industrialized democracies decided to join into free-market capitalism, financially structured on the model of the Federal Reserve System, with the USD as its base currency.

    That action has led to the current global crisis.
    By funding the growth of global capitalism via a debt-money system, we set in motion the mechanism for today’s global financial debacle.

    A system that bases its growth on debt-money is mathematically unsustainable. Figure it out.

    Welcome to the future.

  14. This is to ‘painless’ .
    And I am serious.

    What law?

  15. On another note, if you want to get to the core of what caused the real estate bubble, and the bubble, and any other bubble that has inflated since the Fed opened for business in 1913, you need only look at a few fundamental factors to understand the causes. The first, is that a mostly privately controlled central bank had been granted the right to issue our nation’s currency. Second, was our vacating the Bretton Woods system in August, 1971 when the “Nixon shock” closed the gold window and rendered the US dollar a true fiat currency anchored to nothing but Fed/Treasury inflationary policies. Third, in 1995 fractional reserves were cut to zero (your boy Aaron Krowne wrote a piece for iTulip detailing this Fed policy change). Then finally, Gramm-Leach-Bliley – a piece of legislation that was ostensibly created to help our financial markets become more competitive in the face of increased global competition. If you look at the history of the term ‘globalization’ it first surfaced in the Clinton administration. Prior to that, George Bush Sr. had coined the term ‘New World Order’ – which was basically a fusing of Europe, the US, and Japan’s banking system. The term ‘New World Order’ was unpopular with the public and it quickly dropped from Presidential speech. It was replaced by ‘globalization”. If you study central banking, you’ll find as its core business component the ability to issue a nation’s currency as its control mechanism over the governments and markets it supposedly serves. I’ll leave you with a few quotes.

    Thomas Jefferson, the architect of the very freedom under which we live, had warned America: “Bankers are more dangerous than standing armies… [and] If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”

    “Money is Power”, or shall we say, “The Monopoly to Create Credit Money and charge interest is Absolute Power”. (Alex James)

    Amsel (Amschel) Bauer Mayer Rothschild, 1838: “Let me issue and control a Nation’s money and I care not who makes its laws”.

    Woodrow Wilson after having signed into law the Federal Reserve Act: “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

    John Maynard Keynes wrote in The Economic Consequences of the Peace (1919): “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
    Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

    Look for the emergence of language relative to a ‘new world currency’ in the wake of these most recent events. Everyone is talking about a ‘credit crisis’, or ‘liquidity’, or ‘solvency’. While all of them are partially true, what we are witnessing is a ‘currency crisis’. And one way to fix a currency crisis is to usher in a new one. Keep your ears open over the next few years. I know if I were an international banker I’d want control over issuing the world’s currency. Wouldn’t you?

  16. The American consumer has more debt than he can ever repay. Do we really need to increase it by encouraging it with more cheap money? Let this thing run its course; as painful as it will be, then we can began to make good loans that make sense for the consumers and the banks.

  17. Dear Shadowjack – You’re right, American’s are more indebted than ever. So is our government. One of the questions that congress is struggling with at this very moment is this – when they cut loose on these funds, which are mostly a transference of non-performing assets from private to public balance sheets and to a lesser degree actual cash infusions into the banking system, exactly what path will this money follow and what effects will it have on stimulating credit markets. Whether we like it or not this is a pill we have to swallow.

    The fact is that the bulk of MBS were sold under the auspices of being the highest quality investments (notwithstanding US Treasuries) and if we do not make good on these representations an all out financial collapse will ensue. It’s like this – the dike has broken. Fix the dike first, then diagnose the causes of the failure and re-engineer it to not fail again.

    One belief I have always held is that things are not always as they appear. Think about this – does a Ben Bernanke, or Henry Paulson, or George Bush for that matter want to go down in history as having caused the greatest financial calamity of all time? I don’t think anyone would want that distinction.

    I think what needs to happen in this country is for its population to rise to the occasion and become true students of the system under which they live. We live first in a worldwide fiat (credit) based monetary system, second in a democracy, and third in a community of individuals that is both connected and disconnected from one another at the same time. I believe a great philosophical debate needs to happen with respect to just what our society has become. Is it still a democracy free from the influences of industry and finance? Or has it perhaps evolved into a plutocracy wherein a fusion of money and government is the rule? For now I’ll go with the latter.

  18. Great points all, especially Rebel and Joebhed.

    To capture a bit of ‘real-world’ perspective on what’s happening today – a few rungs down from the financial policy-wonk level, to a place where an average man can get his arms around something of meaning:

    How many of you guys grew up in the late 60’s through the 70’s? The reason I ask, is because up until that time period, social standards of conduct and the paradigm of governing personal finances (savings vs. expenditures – saving first, spending later) had fairly well stayed in tact for generations prior.


    If you were like me, you lived in a modest tract home, Dad had a car (or pickup), you ate well, perhaps went on a vacation or two a year, etc. All good & normal stuff. Mom and Dad – although not wealthy and were likely never to be wealthy, instilled some basic economic knowledge and discipline into our thought process. What we did with that knowledge later in life would largely dictate our ability live a decent life, with savings to make it through to old age, assuming we didn’t bite it sooner.

    They taught us:

    – To live within our means
    – To save first and spend later
    – To not buy into the hype of the ‘latest & greatest’ – whatever it was.
    – To exercise self control.

    Do any of those lessons ring a bell?

    Do any of those elementary lessons boil down our current economic mess to a base stock that we can all agree on and understand, or has the system become too ‘complex’ for us to grasp?

    Hopefully, we are teaching our kids these same lessons that were lost somewhere along the way in the ‘new’ paradigm of borrow & spend as opposed to save & produce.

    I don’t consider the current economic crisis to be anything more complex than an astute 7 year old could understand from a basic fundamental standpoint. As Peter Schiff would point out: “We simply need to spend less and save more; Produce more and borrow less.”

    At least I didn’t shout this time –

    Peace –


  19. The new Trilateralists.
    That would be CC, the Rebel and me.

    With the possible exception that I personally don’t hold much stock in the consequence of the abandonment of metal-backing to our currency.

    I think there is little use in discussing the benefits of a return to such.

    To me the whole problem is the function of the debt-money system.
    I believe that it is arithmetically unsustainable.
    And, that if we do not wish to be slaves to whomever it is that is holding USD paper, then we need a new money system, one that is not based on debt.

    I wrote this elsewhere, but I hope it is relevant to this discussion.

    BORROWING $700 BILLION results in debt service costs for repayment of about $2 TRILLION by the American taxpayer.

    If these IB’s leveraged that paltry $700 BILLION at a paltry 10 to 1 ratio, then THEY will create $7 TRILLION in additional debt. For some reason, people refer to it as credit.

    And, again, that $7 TRILLION in new debt would create repayment obligations – debt service costs – of about $20 TRILLION.

    Soooooo, do I have this right?
    I mean, please folks, help me out here.
    If they buy into Phase I of the Goldman-Sachs bailout, will we all owe another $20 TRILLION to somebody?

    And, phase II ??

    Simplistically, all new money used to support economic growth is created as debt.
    All of it.
    We need to have $3 to pay back every $1 of debt-money.
    Where do we get the money to pay it back?
    Think about it.
    THIS is the Ponzi scheme.
    And we all are the suckers that bought into it.

  20. Burn the books. Let’s forget everything. What debt ? What losses ? Let’s start all over ? You will be paying it back all right with depreciated paper and more debt. I don’t see any problem as long as these might I say ?, these stupid foreign central bankers gobble up all AGAIN and AGAIN all the new paper.

  21. CC and Joebhed

    It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
    Henry Ford

  22. Many good points have been made in these comments, but the best is about the old values of save first and buy latter.

    No down payment for cars or houses in the U.S. and 125% loan to value ratios by Northern Rock in the U.K. brought us to this sad state of affairs. As well as the destruction of our regulatory system.

    Many of these pools of mortgages, car loans, credit card debt, etc. are trading at less than 20 cents on the dollar.

    This is because:
    – higher than expected levels of default
    – the difficulty in analyzing a pool and the shortage of people trained to do it
    – the lack of short term lending to buy these pools at any price
    – the large overhang in REOs and repossessions
    – the desire by funds to not have any of this on their books
    – restrictive foreclosure laws just past in California, which increases the holding period
    – and the total lack of incentive for the senior tranche holder to allow loan modification.

    Over time, many of these pools will return 70 cents on the dollar, even with these high default rates. But it will be a long time before we can get there due to the vested interest of the senior tranche holder.

    Being realists, we must recognize that some form of bailout, or string of bailouts will be done by our government.

    It is best to seek out the regulations we need and expose the proposals coming out of K-Street to benefit the bankers.

    Because of the delays in the democratic process, what we need will be slow in coming while K-Street emergency members will come at us like lightning.

    Among the things we need are:
    – national usury limits on credit card debt of 18%.
    – Limits on late charges
    – Payday Loans to be regulated as credit cards (destroys their business model, this is good)
    – All car loans to require 10% down and capped at 12%
    – All home loans to require 10% down
    – All real estate loans to have lower interest rates with larger down payment (if you put 50% down, your rate should be less)
    – Financial institution leverage rates to be lowered to 12 to 1, and latter to 8 to 1, and then to 6 to 1.
    – Up the limit on Savings Bond purchases from $10,000.00 to $100,000.00 per year to encourage Americans to own America’s debt

    We need to encourage savings and discourage debt. It is criminal that you can deduct mortgage loan interest but not credit card nor auto loan interest. Hovever, due to the steady decline in house prices, we cannot fix that now.

  23. (Link to Greenspan’s letter below): Greenspan is correct. We need to fix the dike, then go about re-engineering it after the crisis has abated. For now we’ve got to trust that our leaders are sincere in heart and mind. Remember, these people have families, relatives, and friends that will all be effected if they fail. Just remember that good American people will always find a way to make their voice heard. This time it may be very loud and if we’re lucky, a revolution (peaceful of course) will ensue and the old money regime will once and for all be servant to the people from whom they profit – and not the other way around, which has failed time and again throughout history.

  24. Rebel, I concur with many of your thoughts and points but from my perspective the end result of all this is unavoidable and all of these bailouts only delay the inevitable. Go look at Drudge Report, they link to a UK article that without the bailout stocks will drop 30% – guess what, they’ll probably go down that amount eventually, why not take everyone out now and get on with the business of rebuilding this country economically.

    I can buy off on a plan to take these assets off at current market values (not maturity or fantasy values which will probably be what they end up doing) and holding them until conditions approve and resell them at presumably a profit for the taxpayers. But everytime they do this, Barney Frank or some other Democrat insist on some program to be added to keep people in homes they can’t afford and prolong the agony. ENOUGH!!! Foreclose and bulldoze and tell everyone to requalify under new loan requirements to prevent this from happening again. And another reason why they can’t sell this to middle America is they keeping harping on unfreezing the credit markets with liquidity but they’re only solution is to buy the banks’ junk at overpriced levels – they can’t fool most.

    We’ve sold our soul to the foreigners and now have to pay up. I figure between the increase income taxes, payroll taxes (caps going away and rates going up), and any Obama redistribution of wealth plans thru taxes on “the rich”, I and many others will pay for this crap for the next decade until the next bust happens which will increase our bill (when Social Security collapses).

  25. Just saw the congressional leaders come out for a news conference. All they did was talk about how hard and long they worked, and how tired they were…and how difficult it was…and congratulated each other for such hard work…and thanked each other…and congratulated the bazooka…and that they were close to a deal that will in all likelihood:

    1. Not be the last of a series of repugnant bailouts
    2. Not stop the economy from falling into recession, or worse.
    3. Not help the falling value of the dollar.
    4. Not stop the falling value of overpriced homes

    I think that we all should call our elected officials and “congratulate” them for their hard work. They, after all, worked on the weekend (and just reminded us of that several times in their news conference). It was hard for them.

    Poor congressional leaders,


  26. Here’s an even better plan: let those who entered into bad contracts suffer the consequences, just as they were allowed to pocket the profits when things were going their way. Don’t pass the losses off to the taxpayer, and to those who made reasonable and prudent decisions with their money, instead of betting that house prices would go up forever.

  27. JJ,

    You’re right. This bailout only delays the inevitable. I think we can all safely assume that the Fed, Treasury, the President, Congress, and Wall Street know it too.

    After this first round will come round two, three, four, who knows how many to fix a broken system. I actually believe what is at stake is our entire philosophical foundation as a nation, and potentially as the human race. Think about the way the world works. Milton Friedman once said, “Where capitalism goes, freedom follows.” What a beautiful precept to democratic rule. However, it can also be said that ‘wherever capitalism goes astray, the rule of the few follow.’ My own words actually. I’m sure Karl Marx believed that wherever the collective flourished, peace and happiness would follow right behind. The fact is that no system of government has yet to prove itself as the solution to the human struggle.

    Thomas Paine wrote in Common Sense (a precursor to the American Revolution) – “Society is produced by our wants, and government by wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices. The one encourages intercourse, the other creates distinctions. The first is a patron, the last a punisher. Society in every state is a blessing, but government even in its best state is but a necessary evil.”

    Can you imagine if there were no Democrats or Republicans? I can. There would be only issues, and arguments on either side made by good people without the distinctions caused by superficial affiliations to a perceived common ‘party’. The only party should be the Party of the People and our only affiliation should be to one another because as of now our government has divided and conquered its own people. To this I think there can be no argument.

    Imagine an environment where social responsibility became the new paradigm. Our system has become so skewed that the only social responsibility is to get ahead of the other guy. Maybe that is all we can hope for from the human race – to compete, to kill or be killed. That part of our behavioral evolution is what got us into this mess.

    Blame can be laid on many laps for this crisis. The fact is that wherever fiat currencies have been made to roam, inequality, inequity, and class distinctions have widened. You can throw any form of government next to a fiat currency, and the currency wins, every time. In the end all fiat currencies do in fact fail but only long enough to be resurrected by the same money trust that I believe has quietly controlled the currency in our wallets for quite some time.

    This bailout is coming. It’s going to be bigger than anyone’s wildest imagination. The consequences I fear will be catastrophic. I can only hope that we come out the other end with a new party in rule – the people. We need to take back the right to issue currency from the central bank and put it back into the hands of transparency. Don’t you think it’s odd that the Fed only meets behind closed doors and the minutes of those meetings don’t become public for like seven years or something? I would love to have the US license to print money and set target rates and not have to answer to anyone. The whole world would be beholding to me.

    Tired. Must go to bed…

  28. Jesus H. Christ. Now all the taxpayers get to be creditors for the lousy debt investments. We aren’t even getting in at the bottom where it could make some sense. In effect renters are being asked to buy houses and owners are being asked to buy second houses and to the pooehouse we all go.

    Short the bounce.

  29. Yes, short the bounce as October should be a train wreck. With all this funny money being pumped into the system perhaps good old gold has got a run-up coming soon?

  30. People are going to starve. Just like they did in the great depression. Our gov’t will prop up the artificially inflated value of our “assets” by all means possible. Since Americans can’t afford these inflated prices, they will starve.

    They burned and slaughtered wild stock and agriculture while Americans starved, in order to keep the values up during the great depression. Just like today, the Ag industry had very powerful Lobbies on Cap Hill.

    This government is not for or by the people. It is completely controlled by special interests.

  31. I agree with Mr. Paulson and Mr. Frank.
    Great little $700BIL pickpocket effort, the kind where you have to feel good after they’ve got your money for some reason.

    “It’s better than hell !!

    Gives you a few more days, maybe even weeks, to get your money out, cause when the hedge funds go, well someone is not going to be able to pay their bills.

    But, hang on here, folks.
    Everybody has a home, most everybody has a job, just like the day before the Big D.
    And everybody can keep on keeping on.
    If they have confidence and trust.

    Except those very few at the top.

    Trust and confidence.
    The trust and confidence of the American people.
    In themselves.
    Look out for that.
    Encourage that.

    And tell the bankers that the game is over.

    That $700 Billion Revolving Loan Fund can be capitalized by the American people’s confidence and trust in themselves.

    Rather than going to the Euro-Sino-Saudi Trust Fund.

    What is needed today is the injection of liquidity into the American financial system.

    Not by giving it to the bankers, who will swoop it up for their shareholders, but directly to the American people. Because it is the American people who would stand behind the full faith and credit of the money being created.
    And they will.

    The struggle for monetary reform has been alive in this country since before we were a country. And today’s painful and tragic debacle demonstrates the need for a monetary revolution, and also provides its opportunity.

    Government(Treasury) issue of legal-tender, debt-free credits through payments for government services and projects, in the exact same quantity and quality as would be provided through the legalized crime of fractional reserve banking.

    Trust and Confidence.
    Faith and Credit.
    The American People.

    Keep on working.
    Keep your jobs.
    Keep your houses.

    And tell the bankers it’s over.

  32. The injection of liquidity into the banks does not mean that the banks are going to inject that in turn into the economy. They’re dumb but smarter than the Feds.

  33. Rebel wrote “Greenspan is correct.”
    Please, give us a break!
    So all of a sudden Greenspan gets it. I submit to you that he was largely responsible for most of this mess. He created the bubble via his printing press, lowering interest rates too far too fast. He made it clear that home ownership should be a priority for all (even people who could not afford such). He encouraged these exotic lending programs and turned a blind eye to regulation and lending standards. It was under this idiots watch that all this happened. Up until last year he spouted to the press that this whole financial debacle was “contained to subprime”
    I really don’t know why anyone listens to anything he has to say, he’s been wrong most of the time.
    All done venting….time for a beer.

  34. 5755hsa,

    I was referring only to Greenspan’s letter to Congress. Of course Greenspan blew the bubble. He was the bubble. So tone down the rhetoric a bit, enjoy your beer, then begin studying possible solutions to get our country out of debt and start voting for or taking action in that direction.

    Personally, I started a biofuel company in early 2007 ( Guess where I think the next bubble is going to be?

  35. […] & Foreclosure Report…Plus National ‘Existing Home Sales’ PreviewRebel on Dear Washington – A Real Plan For You5755hsa on Dear Washington – A Real Plan For YouPatience on Mortgage Defaults Already at $50bb Per […]

  36. Wasn’t meant to be a personal attack. If you want to get my blood boiling just mention greenspan>
    My take on the bailout is No Bailout. We have to restore trust in our financial markets. doing it without a bailout would be painful but I think America would get through it. On the other hand this bailout, even with the modifications still lacks many key components to right the current problems. Leverage.. to name just one. I have no confidence in Paulson, he is incompetent and should be fired. The rest of the world is watching and come next week the markets will decide the fate of what comes next.
    Now this guy gets it.

  37. I propose a fair and simple solution to solve the root cause of this crisis.


    * Root-Cause – The current housing bubble coupled with exotic loans which has finally burst (began around 2002 peaked around 2006 and has fallen since)
    * Primary enabler – Interest rates were too low for too long (Greenspan’s was the primary culprit, the spark)
    * Guilty participants (parties) – 1. Federal Reserve (Greenspan), 2. Lenders, 3. Wall Street (mortgage backed securities ponzi scams), and 4. Speculators/investors.
    * Victims – 1. Primary home owners that purchased, refinanced, or took out HELOC’s during in 2002-2007, 2. US taxpayers, 3. Holders of US dollar, and now the general economy and all unrelated sectors suffering from this.
    * Symptoms – Credit Crisis, Banking Crisis, Economic Recession/Depression
    * What we (the people and leaders leaders) can’t/won’t do – We can’t/wont stop the excess flooding of dollars by Federal Resserve, the Paulson multi trillion dollar bailouts to come. These bailouts and excessive printing of dollars will only temporarily buy time by treating symptoms, it will NOT solve the root cause or stop this vicious cycle.
    * What needs to happen now – Treat the root cause and stop the housing freefall

    Proposed Root-Cause solution (bottom up solution):

    1. The US economic authority must create a statistical “housing streadsheet”: Rows = “city”, colums = “year” (from 2002 to 2008), the data cells contain a respective writedown rate for that year by city. [the writedown rate is calculated based upon historical average appreciation/depreciation by city from the time period of 2002-2008… benchmark is average home price by city starting in 2002 and average home price in same city today (i.e. lets say avg. home price in San Diego starting in 2002 was $350K, and today’s avg. value is now $450K. However, in between that time lets say the average price peaked at $700K.) Anybody who purchased/refinanced above $450K level is now under water, and probably currently have some variation of an exotic loan… If they haven’t already defaulted, they will surely be in line for the next wave of defaults]
    2. Here’s how the writedown rate of this spreadsheet is used… ANYBODY who purchased, refinanced, or took out HELOC’s on ANY property they purchased or owned during this period of time from 2002-2008 (and experienced a paper loss and/or was locked into an exotic loan), gets a loan writedown (as shown on the chart depending upon when the loan event occured, by city, based upon their respective level of loss), and they are extended the opportunity to refinance this new reduced principle at a favorable 30 year fixed interest rate. This writedown/refinance package would be a one time deal and must be taken within 3 months of passing such a program.

    It could be argued how this deal could be structured (either the government subsidizes the writedown and mandates that all lenders must comply with the favorable loan restructure, or the government could buy all these loans from the lenders at the writedown rate, and offer the favorable 30 year fixed loan restructure.). In either case the lender and the government both contribute to the solution. More importantly, this stops the housing crisis (foreclosures and price freefall) without risk of morale hazard, and it is fair as only those who have been victims of the bubble, and/or who are stuck in bad loans would benefit from using the program.

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