Mortgage Mess: Bailing Out The Irresponsible With YOUR Money

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My freind John Galt hits a home run with this assessment of the INSANE decision by the Bush Administration with the applause of Congress to REWARD and BAIL OUT – those who have engaged in bad behavior.

I guess responsibility is now an antiquated notion that went out the window with masculinity in our emoting, feel good there-are-no-risks society.

After all remember, it was the federal government’s fault that New Orleans did not get evacuated before Katrina hit it after it was on the tube for days.

How about $3,000 FEMA cards for the Illegals who got ARMs too?

The New CONtract on America

By John Galt

December 7, 2007

And with thunderous applause, Kudlow is having a Cramergasm, and the banksters all rubbing their hands like Mr. Potter from “It’s a Wonderful Life”, Bush announced the most obvious, stupid and mindless nonsense since Carter threatened the Soviet Union for invading Afghanistan. The original “Contract With America” was a noble idea but as usual the political class had no clue and the American people have been in revolt and disgust ever since the politicians betrayed their trust. So now, a new “CONtract on America” has been developed where those who play by the rules will once again donate their hard earned future earnings to cover for those who have no self-responsibility and no shame. While this blanket statement probably should not apply to all of the subprime “victims” we see paraded on the news every stinking night now, the majority fit this rule. And we are being conned again by the political and financial elites.

The idea that people who can not afford their mortgages when their variable rate mortgages increase can be bailed out because the government urged the banksters to “freeze” the adjustable rate increases is so preposterous, so ignorant, and so Hooverian (my word, better give me credit for using it) that the American people who needed hope will soon find out that they have been given more of the same. Banksterism 101 teaches you that the local banker is no longer your primary contact for doing business when it comes to your sub-prime mortgage issues, that the government will eventually bail you out, and that those pesky eviction and auction notices on your door are just legal fluffernuttery to be ignored until Momma and Papa government come to save you. A funny thing happened though on the road to recovery, salvation and keeping your dog Fluffy playing in the backyard; someone forgot that dirty word “qualifications” in the mainstream financial media and the proclamation that 250,000 homeowners might save their homes is such wonderful news, the fact that another 2.5 million might lose theirs has been lost in the Fast Money ticker of joy and happiness. You see, reality is the one thing people refuse to confront and wow, this plan does everything to avoid confronting reality and guaranteeing that the banksters get those Christmas bonuses and a chance to pump and dump their holdings before the house of cards collapses.

Today’s announcement claimed once again, falsely, that the “mortgage crisis” is nothing but a subprime issue. The reality is that the majority of the problems are now growing in the heart of the middle class where Alt-A, traditional jumbo, Option-ARM’s and just regular good old prime mortgages are in trouble. Toss in a dose of home equity defaults, credit card defaults and auto loan delinquencies and you have the formula for a complete meltdown of the entire financial system. While the mainstream media has kept their focus on the residential housing dilemma, the commercial real estate market is following suit. The word is that “gasp” there really is an economic slowdown and a lot of commercial real estate is going unsold, unfinished and unpaid for. This is creating an entirely new aspect for the government to bail folks out. And that’s where the problem in the solution lies. The issue that most people are willing and sadly somewhat eager to overlook is that a mortgage is a binding contract between two private parties, be they an individual and a bank or a business and financier. History is replete with people and companies who lost fortunes or found misfortune because they failed to read or failed to hire someone to read and interpret a contract. Yet the people who did not plan, the banksters who approved obviously falsified application information (like all those SSN’s of 000-00-0000), and those voters who insisted they could make the payments for two or three years even though their Cadillac Escalade monthly payments were equal to or in excess of their housing payments are all now screaming to breach the basic tenets of contract law. That’s reassuring as hell for a capitalist economy now, isn’t it?

Sadly, there is a precedent for the actions taken today and a reason why the banksters were so willing to accommodate, at least in a photo-op sort of way, the wishes of the political class to sooth the ruffled feathers and prevent the photo ops of single moms having their Christmas trees dragged to the curb on the 24th of this month with six crying kids from their $700,000 home which she got on a subprime ARM with a real income of $40,000 per year (not including government assistance). They bought time, and that’s all for now. But the banksters knew they had no options as on January 8, 1934 the United States Supreme Court voted 5-4 in the case of Home Building & Loan Association v. Blaisdell which upheld a patently anti-capitalist law which the state of Minnesota passed in 1933 called the “Minnesota Mortgage Moratorium Law” which was an attempt to provide protection to farmers and homeowners “during the continuance of the emergency and in no event beyond 1 May 1935.” Needless to say the banksters of the time were furious about this and found their test case but much to their shock and surprise the court shot them down and thus initiated the ideal that government supersedes contract law at will or for the alleged national economic good. The decision included this stunning commentary from Chief Justice Hughes:

“[T]he question is no longer merely that of one party to a contract as against another, but of the use of reasonable means to safeguard the economic structure upon which the good of all depends.”

Despite my reading of the U.S. Constitution over and over again, I never saw anywhere in the Bill of Rights a right guaranteeing that “Failure is Not an Option” and that the U.S. Government can just void any contract it wants between private parties because it wants to safeguard Cadillac ownership. There are legitimate national security issues and yes, I know, numerous cases where private agreements are abrogated for the national benefit and under the guise of the commerce clause, but this case when it was decided in 1934 caused the exact opposite desired effect: Banks failed left and right in Minnesota creating a liquidity and cash crisis which devastated not just the farmers and homeowners it was meant to protect, but the very state and local governments who wanted this law enacted in the first place. The bank failures, farm collapse and industrial base imploding left the local and state governments starved for funding and as a result in worse shape than had the foreclosure process been allowed to cleanse the system.

Needless to say, there is a larger issue, at least in this writer’s mind which is staring everyone in the face and the consequences of nonsense like this and the other various bizarre ideas flowing through state houses to “solve” this “problem” are about to create the very nightmare they thought was cured in the 1930’s. As usual this first step into government meddling is nothing more than the Oprahization of the financial markets to make everyone cry and feel good. But the first consequence will be an almost immediate stifling of new paper coming to the bond markets. Why would anyone write a mortgage contract of almost any sort if they thought the government might over ride the agreement to get Senator Flubbus re-elected? Add in the consequence of the investors wanting to shed the paper now at almost any price, and you’re looking at spreads getting ready to soar into the stratosphere which is where I think the TanManMozillo flies to in his G4 to get that deep dark tan. Now that we’ve shaken the confidence of underwriters, banksters and investors, that should pretty much put another nail in the existing home sales and new home sales starting in the first quarter of 2008 once everyone figures out that their return on investment is based on a roulette wheel formula controlled by Benron Bernanke and his group of Goldman flunkies. To add to the misery, find any one with the guts to put up the capital for large scale commercial condominium projects, as even the Donald has cancelled his project in the Tampa area due to the lack of presales despite his name and the Apprentice winner managing part of the project.

The numerous flaws in the plan without even reading it are so hilarious, it’s not even worth posting the details in this rant, just go to the Wall Street Journal in the morning and enjoy the show. The obvious problem that anyone with two functioning brain cells can see is that even though the banksters have turned thirty year paper into thirty five year paper to guarantee their survival with government backing, this does not cure the myriad of other debts that are incurred when one purchases a home. The idiocy of this program does not address an ARM written on a 125% LTV where the debtor is current in their payments and they used the 25% bonus they received on closing for new cars, vacations, or worse, investments in hedge funds that specialized in MBS paper. This means that those foolish loans could easily be protected and even some of the flippers will find a way to deceive the program as they figured that out originally while the good times were rolling. So now I guess we can start the new bail out programs that I propose to finish saving the real estate industry and our economy:

The Escalade refinancing program. All payments are to be frozen at $50.00 per month for 720 months or until the vehicle breaks down. Only people who have subprime home loans where the payments are current and they voted for Barney Frank, even if they lived in Texas will qualify.
The Property Tax dismissal program. In lieu of the inability of people to pay absurd taxes on bogus assessments which the real estate industry promoted to pump up their balance sheets, the Federal Government will pay all property taxes past due on people who had subprime mortgages where the payments are current and they own at least one ecofriendly minivan. To insure this program is fair, people who actually have savings accounts will be required to forfeit at least 50% of their savings because they must be right wing whacko freaks for actually trying to save money.
The Credit Card Forgiveness Act of 2008: Everyone who has a subprime mortgage where they are current and not in default will have their credit card debt paid by a neighbor who doesn’t use credit cards because they are anti-American scum obviously. To insure that people suddenly do not rush out to get credit cards to evade this program, the banksters have assured us that the ABCP market will seize up thanks the Mortgage rescue plan and there will be no desire for short, intermediate or long term paper to be issued to cover any new credit applications.
While I might be speaking tongue in cheek above, the issues are deadly serious. The Fed has no choice, none at all now, but to flood the markets with cheap credit as quickly as possible to insure the commercial credit markets continue to function. Cheap money must become available for the general public also, as the need for the maximization of consumer debt to keep the balance sheets looking good is now national priority number one (Osama Bin-who?). The phrase “inflate or die” will now become the election year mantra as any sustained period with negative economic reports will guarantee a victory by the other party. The Republicans will once again not only sacrifice principles as usual, but long term economic viability in a desperate attempt to retain power which will multiply the problems by larger and larger factors. This attempt to re-leverage a deflating asset class will be akin to burning money in the streets and in the process burning investors worldwide who will eventually bail out in a more open and rapid fashion. The currency, our beloved dollar, will soon be useless as inflation on goods and services skyrocket while the assets the government is attempting to save sink in value, thus initiating the great flight that is already under way yet under the radar. The lack of a manufacturing base will finally come home to roost and this inability to McDonaldize a recovery from the dwindling expansion will finally wake people up and create a withdrawal of funds from investments nationwide by more and more average Americans. The late comers, as usual, will fly to the safety of gold, silver, and other hard assets to weather the storm, just like their parents did in the 1930’s. Meanwhile the Subprime Generation will be wondering where their next magnetic strip will come from, leaving them bewildered when they are laid off from the shopping mall and unable to seek further government aid to sustain their debtor’s lifestyle. The ultimate ending to this story has not been written yet. But the prospects of a deflationary depression starting in late 2008 are quite possibly staring us in the face, as the ability to honor contracts, be they residential mortgages or MBS, CDO’s or CLO’s, will eventually implode our system and the maybe even the government debt creation machine built upon it. The consequences of our excesses for forty years shall now come home to roost. The time to prepare was yesterday, the time to pray for a miracle is now.

For more information on the case and the information quoted above: Home Building & Loan Association v. Blaisdell

3 Comments

Filed under Economy, News

3 responses to “Mortgage Mess: Bailing Out The Irresponsible With YOUR Money

  1. Hi! I work at CurrentForeclosures.com a foreclosures site. You are right to point to point out that there are several layers of factors underlying the foreclosures crisis. And I agree that there is not one single solution to wipe it out. Not all foreclosures are caused by the change in subprime rates, it is possible that homeowners may have lost jobs or gotten sick and became delinquent. It is also true that at some point the lenders or even the banks became too greedy for profit. and they all became the fuse for the foreclosure bomb. Now we are all left to deal on what we are going to do with the pieces left scattered around. One thing for sure it is not only the real estate economy that is affected. While it was devastated, other business sectors are being affected too. It has a domino effect and it sent strong ripples.

  2. Harrison Bergeron

    This is a great article. I agree that the long term outcome will be deflationary, however I am not so sure we will see a period of inflation before it. I think you are completely spot on as far as the severity of this situation and it does not bode well for the next 10-15 years of this country.

  3. David

    Have you noticed the Democrats aren’t calling for an investigation?

    If there was a single Republican to be held responsible for creating this mess, there would be no end to it in the media.

    Why are the Republicans afraid to tell the truth about this. The government pressured the mortgage entities into making these crap loans, and that’s what got us into this mess. NOW THEY WANT TO HELP THE PEOPLE WHO GOT IN OVER THEIR HEAD!!!!!!!!!?????????

    Bail out the Mortgage Industry, but no special provisions for homeowners that got in over their head. That’s just the reality we all have to deal with. 95 percent of the mortgages in this country are being repaid just fine. How much further can they push the normal, hard-working, people around?!

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