Saturday, February 28, 2009

Homeowner Affordability and Stability Plan

Executive Summary

Read the Homeowner Affordability and Stability Plan Fact Sheet

Read Support Under the Homeowner Affordability and Stability Plan: Three Cases

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.

Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.

Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable

2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner

Affordability and Stability Plan are:

1.Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices

Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:

Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today's low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.

No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.

Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.

Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.

Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:

A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

"Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive "pay for success" fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.

Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC's pioneering work. The Guidelines will be used for the Administration's new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.

Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities

Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance

Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options

Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds

Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.

Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.

Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.

Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.

Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.

No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.

U.S. Treasury:

Monday, February 23, 2009

SBA warns Small Business Alert

Small Business Administration Issues Scam Alert

The SBA is warning small business owners to ignore letters they may receive that falsely claim to be from the SBA.

These letters appear to be on SBA letterhead and ask for the small business owner's bank account information to qualify them for federal tax rebates under the Economic Stimulus Act. These letters are fraudulent and were not issued by the SBA.

If you receive such a letter, you are urged to contact the Office of Inspector General fraud line at 800-767-0385 or

Sunday, February 22, 2009

The Crash of 2008

Have Wall Street's "Wizards" wreaked lasting market havoc? (by Eric Blair, community guest columnist)

We haven’t been here before:
The 2008 Crash has just one main similarity with the tech bubble of 2000: we were due for a recession after eight years of one-party rule of the White House. Other than that, the two cycles are dramatically dissimilar.

The first major difference lies in the shape of market performance. In the late 1990s the NASDAQ went “parabolic,” with valuations rocketing way ahead of fundamentals. By contrast, in March 2003, after a big bounce at its beginning, the subsequent recovery in equities steadily climbed the “wall of worry” with relatively small corrections, of relatively short duration, when valuation excesses arose. After the initial bump in early 2003, the market marched ahead without the “irrational exuberance” that characterized the late ‘90s. When the S&P 500 failed the test of its new highs in late ’07, in its role as a leading indicator it signaled a recession of some kind likely in the offing, right on schedule with the coming election cycle. But nothing in the market numbers back then would have led one to expect the kind of steep, sharp drop we saw beginning in September 2008.

The second major difference is that while many of us caught speculative fever in the ‘90s, the Fed’s over-correction of interest rates, first to the upside, then to the downside, combined with Wall Street’s creation and promotion of the “toxic assets” we’ve been hearing about -- mortgage-backed securities, collateralized debt obligations, and credit default swaps -- poisoned the most basic asset in America: the family home. Risking a few thousand, or even a few tens of thousands, of retirement cash, or other liquid assets, in the stock market, is one thing; to risk one’s home equity is quite another.

But because of the way Wall Street and its regulators set up the various mortgage-backed instruments, it wasn’t just those who took refi cash out of their homes to buy cool stuff, or make down payments on second homes or vacation condos, or play the stock market or other speculative ventures -- EVERYBODY participated in the risks associated with the creation and distribution of these toxic assets – most of us involuntarily -- because unlike in the 2000 tech bubble the products being marketed weren’t fancy hi-tech gadgets or vaporware that ordinary people could live without. Ultimately, what the creation of mortgage-backed financial instruments and the criminally sloppy way they were marketed and regulated did was put the entire world financial system, ALL OF OUR MONEY, at risk.

No one on Main Street will miss, indeed, few will even remember, many of the companies that were created, and then went boom and bust, since 1990. But a financial industry – in some form -- is something we just can’t run a modern industrialized economy without. Every company, from hi-tech to no-tech, needs access to capital. The US was founded on easy credit. It cannot survive long in its present form without it. The collapse of the real estate market, together with the mortgage securities market, has resulted in an unprecedented threat to our financial system. Money itself, and the circulation of that money, has become the issue. When its blood circulation stops, an organism soon dies. That is now the prospect our economic organism faces. Like the Crash of ’29, and the long depression that followed, individuals, people, and financial institutions are doing the equivalent of hiding it under the mattress, which of course does the opposite of what is needed. Galloping greed has given way to freezing fear. Major companies that have been around forever, like General Electric and American Express, are just as threatened now as any over-leveraged vaporware-producing outfit in Silicon Valley was in 2000. In addition, a whole generation’s worth of equity, both their 401-K retirement funds, and, more importantly, their home equity has been erased.

We’re all in it together:
The global credit crisis is one of a confluence of events (OK, not a graceful phrase, but aren’t you tired of hearing “perfect storm?”) that could not have happened in other times. The economies of nations across the globe, from Asia to Latin America, First World to Third, have become interdependent and synchronized to a greater degree than ever before, so it should be no surprise that they all turned down at about the same time. One o f the scarier consequences of the interdependence and synchronicity is that those nations upon whom the US relies to buy US debt, like China and Saudi Arabia, thereby keeping our credit markets afloat, may not be able to do so this time around or at least not to the extent they once could, or in the amount needed to help, because their economies are also undergoing contractions.

No quick turnaround in sight:

If, as has been estimated, the entire increment in consumer spending from 2000 through 2008 is roughly equal to the amount of home equity gained, then lost, during the same period, then it is unlikely that any public or private initiatives can bring back the good times in short order. If we learn to live within our means, it will result in a smaller economy for some time to come. If we find a way to borrow more money to re-stimulate more consumer demand to pre-recession levels without also finding a way to raise real incomes, it will only postpone the day of reckoning further into the future.

Pointing the finger where it belongs:
The behavior of the big money-center banks lies at the heart of the crisis. Their creation and marketing of complex, poorly understood, and badly managed security instruments has created a mess so convoluted and widespread that once the full extent of it is known we may discover that there might not be enough time and government-backed credit to solve it. If so, the Crash of ’08 might make the Crash of ’29 seem tame by comparison.

Consider what is probably the most dangerous of these paper viruses, the credit default swap (CDS). A CDS is an insurance policy against the risk that a borrower will default on the principal of a loan – and the loan can be any form of debt instrument; typically it is a corporate bond, or a home mortgage, or a package of any of those, which itself can be re-sold as a security. (For a clear discussion of all of the “toxic assets,” see CDSs themselves can be packaged into groups and sold and re-sold to many different parties, and that’s one of the things the big banks did that has got them into so much trouble. Big insurance companies like AIG dove right into that market, writing and selling these CDS insurance policies on debt they apparently assumed was a pretty safe bet.

But it wasn’t. When the housing bubble burst and the default rate on home mortgages skyrocketed, the buyers of CDSs found themselves with huge gains, on paper. But the gains were illusory if the insurers, like AIG, couldn’t pay the principal owing on the CDS. Since the pool of funds they had available to pay off such insurance policies was a small fraction of their total exposure, they got in deep trouble real fast. And when they couldn’t pay off the principal they insured through the CDS, then not only they, but also the buyers of the CDSs, got in deep trouble. What is the total extent of that exposure? Nobody really knows yet, because of the complex way these paper viruses have been spread around, but it is probably in the trillions. And guess who holds the bulk of the CDSs? That’s right, the same big money-center banks that are the focus of the ‘nationalization’ debate. And now you can see why. Thus, those who claim that major banks like Citi, or insurers like AIG, are “too big to fail,” do have a point. But it’s not a pretty one.

So it turns out that the Bernie Madoff story is not the coda of the crisis; rather, his scheme symbolized the central paradigm of the money-center banking system: a giant Ponzi scheme in which everyone’s money was risked in a game that sooner or later had to go bust.

Bankers: I’ve got to ask: What were they thinking? ALL markets go in cycles. To bet on a continuous climb in anything is foolish. To bet everything on that outcome is just insane. Yet that is what they appear to have done.

Bankers: We trusted them with our money, ALL of it. Ironically, it was the traditional image of bankers as cold-hearted cool-headed skeptics who made loans based upon hard facts, not on hope -- certainly not on their belief, faith, or trust in their borrowers – that provided the basis upon which we trusted them to handle our money. Now that traditional image has been shattered by the revelations of their irrational binge in toxic assets. Now that their profiles have been downgraded to that of gambling addicts, we won’t be using words like belief, faith and trust in them any more, not at least for a long time to come. Nor is hope likely to return anytime soon, either.

There’s plenty of blame to go around:
We have the best Congress money can buy. Encouraged by lobbyists, members of both parties have routinely binged on deficit spending pork projects and encouraged risky lending practices, through Fannie Mae and Freddy Mac, for example, that at the very least helped make the financial mess worse.

The big money-center banks have more effective lobbyists and contribute more money to candidates than whatever interests might have raised concern about the direction our financial system was heading. Congressional perfidy and ineptitude are reasons to temper calls for more federal involvement in the financial system. The recent congressional hearings before which big bank CEOs were grilled by those whom we elect to look out for the common good and who are the stewards of taxpayer dollars were a pathetic exercise in deception and hypocrisy on both sides of the table. Which side earned the Baloney Award? I call it a tie.

Federal intervention: a treatment, a cure, or part of the disease? When the first bank bailouts were announced during the darkest days of 2008, even the skeptics agreed the situation was dire enough that “something has to be done.” As the crisis seemed to abate, however, criticism of the use of the federal funds rose. When the Treasury under Paulson changed its strategy away from purchasing toxic assets to taking equity positions in the banks, many disagreed. When the auto companies jumped on the bandwagon, many cried out in alarm: “They’re going to fail anyway, why postpone the inevitable?” “Who’s next?” “Where does it stop?”

The new President offered hope, offered change we could believe in. Yet when the so-called ‘stimulus bill’ fell far short of the President’s pledge of no earmarks, disappointment rose and expectations, and the markets, fell.

When new Treasury Secretary Timothy Geithner --reported to be a protégé of Goldman-Sachs alumnus Robert Rubin – bombed in his first presentation of his financial system rescue plan, expectations and markets waned further. And skepticism from all quarters rose to a crescendo.

Many objected to the bank bailout as nothing more than the privatization of profit coupled with the socialization of risk: the bankers win in good times, while government bailouts mean the taxpayers lose when things go wrong. What else can you call it?

The recent mortgage holders’ bailout has stimulated the most criticism to date. Most famously, CNBC correspondent Rick Santelli took off on that subject in what the station later called “The Shout heard ‘round the world.” The link to that post might still be found here: A link to Santelli’s brief biography and set of recent videos on the government bailout and related issues might still be found here:

Santelli was later criticized for aiming his remarks at the distressed homeowners the program was intended to rescue. Yet to long-time watchers of the station, and of Santelli’s recent commentaries in particular, the context might show otherwise. He has consistently placed himself among the skeptics of the bank bailout. I certainly can’t speak for him, but based on the totality of his recent comments I expect he would agree with these points: Who really gets bailed out by any homeowner rescue package? Well, where does the money for the mortgage payments wind up? At the banks. Where did the TARP money wind up? At the banks. When consumers receive their economic stimulus checks, they will most likely use it to pay down credit card debt, or save it. Where will that money wind up? In the banks. Are you beginning to see a pattern here?

To me, and I expect to other critics of the bailouts like Santelli, the real ‘moral hazard’ lies in rewarding bad behavior, no matter whose it is, especially by using the tax money of those who didn’t engage in that behavior, which is the majority of today’s taxpayers, for they are unlikely to owe any taxes if they are among those eligible for government relief.

In his rant Santelli referenced Ayn Rand, author of Atlas Shrugged, who back in the 1950s began warning of the consequences of government intervention in the free market. It would appear her prophecies have been coming true for some time.

I know, let’s blame the ‘free market:’
Those with a left leaning political persuasion, along with those simply disgusted by the apparent unlimited reign of blind greed on Wall Street, are wont to blame ‘the system.’ In a recent column Mona Charen dispensed with that argument in passing, by pointing out that the last eight years saw at least as much pork barrel spending as the previous eight, and that the former Congress and President had “managed to discredit free market capitalism without ever practicing it.”
Little more on that topic needs be said.

Are we, the people, ultimately to blame?
Some of us more than others, to be sure. Those of us who took out home mortgages we didn’t have the income to support. Those of us who took out home equity loans and spent the money on cool stuff like plasma TVs with little or no resale value, or assets that suddenly fell in value, like second homes and stocks. Those of us who used credit cards to finance any or all of the above, or just used them to live on when our expenses began to exceed our incomes. We bet things would continue to get better, without end, and we were wrong.

Aren’t we ALL to blame, ultimately?
Don’t we, the people, bear the ultimate responsibility for what our government does for us, and to us? Isn't that the price we pay for being a republic of, by, and for the people? We elect the congress critters who are supposed to look out for our interests, and election after election we return most of the incumbents, like the undisputed King of Pork, Robert Byrd of West Virginia, who according to one of his colleagues in the Senate got $75 million to construct a new ``security training'' facility for State Department security officers to be built in his state out of the ‘stimulus’ bill. How many terms has he served in the Senate?

Muddling toward a short-term fix while looking for a long-term solution:
To solve this unprecedented financial crisis, the government needs a new model to work from, a model that fits Einstein’s criterion: “Everything should be made as simple as possible, but not simpler." Perhaps the recent crash landing of US Airways flight 1549 into the Hudson River might prove a fruitful analogy upon which to base such a model. If the President’s economic team studied five critical elements of that incident they might find a template for how to proceed to do their jobs somewhere nearly as well as the aircrew of Flight 1549 did theirs.

First, sometime circumstances force us to acknowledge that a situation has gone past the point of normal recovery. The ignorant news media have referred to the fate of Flight 1549 as a crash, when in fact it was a crash landing. The difference might appear academic, but it isn’t to the passengers and crew. Here are the results: “The FAA reports everyone, including one baby, is off safely. There are no life threatening injuries. There is a flight attendant with an arm fracture, a leg break, and some non-threatening cases of hypothermia.” [from The Huffington Post:]. As veteran pilots are wont to say -- only partially in jest -- any landing you can walk (or swim) away from is a good one. Ditching in the icy waters of the Hudson River in January is not anybody’s idea of a fun trip, but it was the best decision under the circumstances.

Second, the air crew’s decision making process was superb: in a highly compressed time frame and operating under the stress imposed by the threat of imminent loss of the lives of all those for whom they were responsible, as well as their own, they made a clear-eyed and cool-headed assessment of ALL the facts, discarded the many tempting conventional solutions that would have likely caused tremendous collateral damage (such as attempting to return to their airfield or an alternate), to choose the only course that, no matter what the outcome, would at least limit the damage to those who were directly involved.

Third, the results demonstrate that the crew not only made the right decision, they executed it flawlessly. They paid their full attention to each detail in the proper sequence. As they say in Ranger jump school, ‘monotony is the awful reward of the careful.’

Fourth, the air crew, confronted with a complex set of instructions for re-starting the engines, never stopped trying to do so, despite the low probability of success.

Fifth: you can bet the airline, the NTSB, and all others concerned with this matter will perform a thorough forensic investigation to determine if there are any lessons to be learned, or new safety procedures that should be followed, to further enhance flight safety in the future.

So from this incident we can learn the following that might be applicable to the financial crisis:

1. Face the situation directly and completely: assess ALL the facts; don’t discount any facts that are scary or don’t fit your model of the world.

2. Don’t shrink from taking the best action available simply because it might have unpleasant consequences.

3. Don’t give in to false hopes that are likely to have even worse outcomes.

4.Make the best decision that will minimize the damage to those not directly involved.

5. You will pay the price for your mistakes, anyway, so take their benefits: learn from them; improve procedures going forward.

6. Successful execution of any plan means focusing all your attention on each of the details in sequence, and using every tool at your disposal no matter how difficult the circumstances you face.

7. Don’t give up on trying everything that has any chance of working, until time runs out.

While the best solutions to the financial crisis are difficult to identify, certain aspects are easier than others. Here are some key elements that some knowledgeable observers and experienced players might endorse:

Improve Transparency. A key underlying premise of laissez-faire, buyer beware, is undermined when both public agencies and private organizations are permitted to operate behind closed doors. Competitive advantage requires that trade secrets be kept, but accounting practices and other aspects of financial operations must become more transparent before the average investor can feel comfortable with equities investing again.

Sufficient Simplicity is a virtue: Recall Einstein’s criterion cited above. And a corollary is: If you don’t understand it, leave it alone, as Home Depot’s venture capitalist Ken Langone recently advised us all on his appearance on CNBC Friday February 20 2009.

The basic concepts of mortgage-backed securities, collateralized debt obligations, and credit default swaps were not toxic in and of themselves. Out of the context in which the ignorant and the greedy ultimately placed them, they each made a certain amount of sense. But when the complexity of the instrument outstrips the means of accountability, trouble is sure to follow at the first sign of a change in market direction.

Government action in the credit markets must be as sure as it is swift: Do it quickly, but do it right. As Wyatt Earp supposedly said: “Speed is fine, accuracy is final! You need to learn to be slow in a hurry.” The risk of moving too slowly must be balanced with the consequences of getting it wrong. The problem wasn’t so much with Geithner’s presentation as it was with the expectations the President created the day before that led us to believe that the Treasury Secretary would provide all of the details the following day.

Full Faith and Credit of U.S. is NOT unlimited: The ability of the US to provide bailouts and stimulus spending through deficit financing depends upon the willingness and ability of US creditors, including other nations like China and Saudi Arabia, to continue purchasing US treasury debt. Whatever the state of their willingness, their ability is also finite. To put it in perspective, Nouriel Roubini’s estimate of the total amount of illiquid debt of US banks, some $3.6 Trillion, is greater than all of China’s foreign currency cash reserves. Check out his site at:

These grim facts underscore the tragedy of the so-called stimulus bill, where every dollar wasted on pork reduced the capital available to the Treasury to restore the financial system. Maybe only fifteen or twenty percent of the stimulus was pork -- as opposed to job-creating or job-maintaining investments, and safety net components like unemployment insurance -- but that still amounts to between $120 and $160 Billion dollars. Here’s a sick joke: I’m so old I can remember when a billion dollars was real money. Not long ago $100 Billion dollars was REAL BIG money. And you know what? It still is, just not in the US Congress, where a majority probably are disappointed they couldn’t cross the $1 Trillion mark in their relentless quest to spend our way into prosperity.

Another CNBC contributor, Jim Cramer, has suggested a broader mortgage rescue plan, that he feels would achieve these goals: “… to keep people in their homes, save the banks and create jobs.” The link might still be found here:

But should we be so worried about saving the big money-center banks in their present form? The government in effect ‘nationalized’ the savings and loan industry through the Resolution Trust Corporation (RTC), a system that appears to have worked. We should hope the current administration does not automatically discard such a solution for fear of the popular reaction to the concept of ‘nationalization.’ Certainly the government should not run the banks that survive, but might we be confronting a situation now that is similar to that which confronted the air crew of Flight 1549, where the choice of a crash landing, as unpalatable as it was, would be the best one? If the toxic assets hidden in these big banks balance sheets are as bad as some suggest, might it not be better to put them down than keep them on life support with continuous injections from the dwindling supply of US credit? I’m not concluding that’s certainly the right answer; I’m saying that choice should not be automatically discarded for political or emotional reasons that cannot afford to hold sway in Washington DC any more than they could in the cockpit of that airliner.

So, let’s put this proposal on the table: give the TARP recipients a date certain by which they must repay the taxpayers, or they will be taken over and put into an RTC-like process and liquidated (and their CEO’s will be hauled before more grandstanding congressional hearings.)

Regulation: not a matter of whether, but how:
Certainly regulation will have to change before faith and trust will be restored. As the President said during one of his recent press conferences, it’s not about bigger or smaller government, it’s about smarter government. Amen to that.

Yet the problem doesn’t go away just by identifying it.

The revolving door needs to close. Yet don’t the President’s cabinet and other appointments come from the same ranks as those of previous administrations? Meet the new boss, same as the old boss? How many federal financial regulators are former employees of investment banks like Goldman-Sachs? Isn’t that kind of like recruiting jail inmates to be Sheriff’s deputies? Why was Lehman Brothers allowed to fail while Citi was not? Who sits on the boards of the survivors, versus those who were allowed to fail? Was the current crisis simply the result of a confluence of foolishness and greed, or something worse? To what extent did access to congress via lobbyists, play a role in determining who survived on Wall Street and who did not?

A “West Point” for regulators? The dilemma has always been, where to find competent people to fill positions regulating such a complex industry as banking and finance, if not from that very sector? The idea has been floated that the feds should create a kind of military academy for financial regulators. The devil would be in the details, as usual, but it’s an idea worth considering.

One thing’s for sure: better regulation is needed but even at its best it will not solve the whole problem. We should limit our expectations regarding the efficacy of regulations in general; the regulatory system is as complex as the toxic assets that system should have regulated. The Code of Federal Regulations ( is a vast maze consisting of thousands of pages of rules; there are already too many of them; they are too complex, too difficult to administer, even by those who are not looking to land a fat job on Wall Street after their term as a regulator, or coming from Wall Street to begin with. To achieve the President’s smarter government, we need a complete overhaul of our regulatory system.

As Ayn Rand has pointed out, government regulation can often create a vicious cycle such that the more the government does to fix the problem, the worse the problem gets.

And when a group of governments gets together, the tendency only compounds. Consider the upcoming G20 summit. “The push to re-regulate, which is the focus of the G20 intergovernmental process process (with the next summit set for April 2), could lead to a potentially dangerous procyclical set of policies that can exacerbate the downturn and prolong the recovery. There is currently nothing on the G20 agenda that will help slow the global decline and start a recovery.” (from The Baseline Scenario:

Closer to home, here is yet another example of the law of unintended consequences: Our own taxpayer money being used against us: Have you had this experience? A few months before September 2008, I’m told, negotiating a better rate on a credit card with a major bank was a relatively easy process. Now, it’s a different story. The difference is TARP, the government program that gave that bank, and its sisters, enough capital to survive even if folks like you and I, facing exorbitant credit card rates, default on those loans. The banks don’t care so long as the taxpayers are going to bail them out, so rather than negotiate a good rate, they hit you for the highest rate they can, hoping to squeeze every last dime out of you before you stop paying them altogether – whereupon they can ask the government for more of our money to keep bailing them out. That such consumer defaults represent yet another shock to the economic system, and thus should be avoided, should be obvious to everyone, but the perverse unintended consequences of the government bailout are likely to produce more of what we don’t want and least need.

Not that there aren’t government intervention models that have worked, and worked well. In late 1987 the equities markets melted down due to a vicious cycle, so the government designed a circuit breaker system. The RTC is yet another example. More recently, the US Treasury apparently intervened to stop a nascent run on the banks in Sept 08, and then temporarily (so they say) doubled federal deposit insurance.

Incentives that work: We should re-design the tax system and federal spending programs to encourage counter-cyclic behavior. For example, there should be built-in incentives in the tax code to reward savings during boom times (when people have more disposable income), and to increase spending during down times (when the economy needs stimulation and prices are lower); instead, we’re doing the reverse, adding to momentum of the vicious cycle. Tax policies could help, if they were quick, nimble, and surefooted, but when was the last time Congress was nimble about anything other than pork barrel spending?

Some people are already figuring their own way out of the mortgage default situation, by challenging their lender’s possession of the original promissory note upon which the mortgage and deed of trust are based; if the lender cannot produce the note, the mortgage is invalid. Even if the lender can produce the original note, the process at least buys the borrower some time to scramble around and try to find a way to stay in their homes.

The Critical Role of ‘the People’s Lobbyist:’
If the Congress is firmly controlled by the lobbyists of the well heeled, how are the people to prevail? Don ‘t we have the best lobbyist of all? Isn’t the President of the United States the chief lobbyist of the American people?

As others have said, it’s time for the President to stop campaigning and deliver on his promise for change we can believe in. He wasn’t elected to perpetuate business as usual. In the federal system of balanced powers, he can’t do it all, but he can and should do whatever it takes to point us in the right direction, and put the onus on Congress to do the right thing, rather than give into politics as usual.

The Future looks Bleak for many Small Business Owners

Will the current recipients of Self Employment Assistance programs be the Future Employers of today's struggling Small Business Owners?

First, I want to acknowledge publicly that I believe government assistance programs provide an essential safety net for struggling families across the nation. Unfortunately, most government programs exclude the self-employed who, (just in case no one noticed), are also struggling to keep their heads above water thanks to the economic down turn.

Political Science professors and civics teachers across America will tell you that the practice of politics is about the allocation of resources to people and communities. But sometimes, the way government chooses to allocate resources can cause harm to individuals, families and businesses.

Drew Millelsen, of KING 5 News in Seattle recently reported that the state of Washington is sending out hundreds of thousands of $1 checks to the state's neediest residents in order to increase state eligibility for federal aid.

Why? The state of Washington would be eligible for an additional $43 million in federal funding if the state's food stamp recipients receive just $1 dollar for energy bill assistance.

The cost of mailing the checks out is $250,000 and could increase food stamp allocations by $30 dollars per month for many recipients. Granted, this is good news for the thousands of families in our state who are struggling to keep their heads above water.

But, the announcement raises a number of questions: for instance, how are the state's neediest residents paying gas, electric, water and sewer bills?

And, what assistance, if any, are self-employed individuals and families receiving due to the economic impacts of the recession?

Who are the self-employed? 1099 employees and business owners.

When I conducted an Internet search for "self-employment assistance programs," it appears that those individuals who are already self-employed and struggling because of the economic down turn, have very few resources to assist them. For a detailed look at the severity of the recession, check out Paul Krugman's article, Who’ll Stop the Pain? posted on the New York Times.

No doubt about it, rising unemployment spared no state last month, and 2009 is shaping up as another miserable year for workers from coast to coast. But traditional unemployment statistics, as gloomy as they may be, do not take count the self-employed.

Many small business owners have exhausted their savings and lay awake at night wondering how they are going to put food on the table, pay bills, or make the mortgage payment. Today, sub contractors are calling contractors, begging to be paid for work that was completed last year, or even the year before.

That's the way it works. The big guys get into financial trouble and the little guys don't get paid. Not getting paid means you can't pay your bills on time. Not paying your bills on time results in a low credit score, which prevents small business owners from borrowing money to recover from the economic down turn.

Meanwhile, former employees have access to unemployment benefits, retraining services, classes and other forms of assistance not available to former employers.

Many of the businesses that are struggling to survive were successful two short years ago. Many of them employed anywhere from two to ten employees. They are, (or were), what politicians on the campaign trail call, "The backbone of America," the entreprenuers who provide the bulk of the jobs for American workers.

They are the men and women who are ineligible for most of the social assistance programs other Americans take for granted -- including unemployment benefits.

However, if someone is receiving unemployment benefits, AFDC or TANF assistance, they may be eligible for a range of state and federal financial assistance to help them get started in their own business.

In fact, the government will extend unemployment benefits while displaced workers start a business. If a worker needs training to update or develop skills, government will educate them. In many states, there are funds available to assist with a business start up. Do I resent the fact that government is helping people? No.

But I do question the fairness of Self Employment Assistance programs that exclude individuals who have been self-employed and have already demonstrated that they have a solid track record of providing jobs for the community.

Is it fair for government to provide benefits for new start up businesses that will be competing with established businesses that do not have access to similar programs?

Why would we want to "throw away" experienced business owners in order to train new ones? More importantly, how can established business owners compete with state-subsidized business owners? Especially when the state-subsidized business owners can underbid established businesses that do not receive any kind of aid?

Let's take a quick look at current federal and state programs that are available to displaced workers but not the self-employed.

The Federal Government

From the United States Department of Labor website:

Self-Employment Assistance Purpose

Self-Employment Assistance offers dislocated workers the opportunity for early re-employment. The program is designed to encourage and enable unemployed workers to create their own jobs by starting their own small businesses.

Under these programs, States can pay a self-employed allowance, instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing businesses and becoming self-employed. Participants receive weekly allowances while they are getting their businesses off the ground.

This is a voluntary program for States and, to date, Delaware, Maine, Maryland, New Jersey, New York, Oregon and Pennsylvania have Self-Employment Assistance programs. The State Workforce Agency web sites for these states can be accessed at:


Generally, in order to receive these benefits, an individual must first be eligible to receive regular unemployment insurance under State law. Individuals who have been permanently laid off from their previous jobs and are identified (through a State's profiling system) as likely to exhaust regular unemployment benefits are eligible to participate in the program.

Individuals may be eligible even if they are engaged full-time in self-employment activities - including entrepreneurial training, business counseling, and technical assistance.


Self-employment allowances are the same weekly amounts as the worker's regular unemployment insurance benefits. Participants work full-time on starting their business instead of looking for wage and salary jobs.

Filing A Claim

You should contact the
State Unemployment Insurance agency as soon as possible after becoming unemployed. At the time you file your claim you should ask whether a Self-Employment Assistance program operates in your State.

Click here for more
Unemployment Fact Sheets

From Washington State:

RCW 50.20.250 (highlights are mine)

Finding — Self-employment assistance program — Rules. (Expires July 1, 2012.)

(1) The legislature finds that the establishment of a self-employment assistance program would assist unemployed individuals and create new businesses and job opportunities in Washington state. The department shall inform individuals identified as likely to exhaust regular unemployment benefits of the opportunity to enroll in commissioner-approved self-employment assistance programs.

An unemployed individual is eligible to participate in a self-employment assistance program if it has been determined that he or she:

(a) Is otherwise eligible for regular benefits as defined in RCW

(b) Has been identified as likely to exhaust regular unemployment benefits under a profiling system established by the commissioner as defined in P.L. 103-152; and (c) Is enrolled in a self-employment assistance program that is approved by the commissioner, and includes entrepreneurial training, business counseling, technical assistance, and requirements to engage in activities relating to the establishment of a business and becoming self-employed.

(3) Individuals participating in a self-employment assistance program approved by the commissioner are eligible to receive their regular unemployment benefits.

(a) The requirements of RCW 50.20.010 and 50.20.080 relating to availability for work, active search for work, and refusal to accept suitable work are not applicable to an individual in the self-employment assistance program for the first fifty-two weeks of the individual's participation in the program. However, enrollment in a self-employment assistance program does not entitle the enrollee to any benefit payments he or she would not be entitled to had he or she not enrolled in the program.

(b) An individual who meets the requirements of this section is considered to be "unemployed" under RCW
50.04.310 and 50.20.010.

(4) An individual who fails to participate in his or her approved self-employment assistance program as prescribed by the commissioner is disqualified from continuation in the program.

(5) An individual completing the program may not directly compete with his or her separating employer for a specific time period and in a specific geographic area. The time period may not, in any case, exceed one year. Both the time period and the geographic area must be reasonable, considering the following factors:

(a) Whether restraining the individual from performing services is necessary for the protection of the employer or the employer's goodwill;

(b) Whether the agreement harms the individual more than is reasonably necessary to secure the employer's business or goodwill; and

(c) Whether the loss of the employee's services and skills injures the public to a degree warranting nonenforcement of the agreement.

(6) The commissioner shall take all steps necessary in carrying out this section to assure collaborative involvement of interested parties in program development, and to ensure that the self-employment assistance programs meet all federal criteria for withdrawal from the unemployment fund. The commissioner may approve, as self-employment assistance programs, existing self-employment training programs available through community colleges, workforce investment boards, or other organizations and is not obligated by this section to expend any departmental funds for the operation of self-employment assistance programs, unless specific funding is provided to the department for that purpose through federal or state appropriations.

(7) The commissioner may adopt rules as necessary to implement this section.

Which raises a final question: will the recipients of the services above be the future employers of today's struggling small business owners?

If so, Ouch!

Link to RCWs: report

Friday, February 20, 2009

Debt Collector to Consumer: &#@$%*%!

Washington State Attorney General sues Everett collection agency for harassment, threats -

SEATTLE – The Attorney General’s Office is suing an Everett-based collection agency accused of harassing, threatening and cussing at consumers. Representatives of Topco Financial Services, Inc., allegedly called debtors names such as “loser,” scum,” “plight on society,”
“no good,” “lowlife,” “deadbeat,” “worthless,” or “terrible parents,” as well as profane names not suitable for print.

That kind of language isn’t just abusive – it’s illegal. It’s also the type of unfair business practice that can make it harder for legitimate collectors who play by the rules to do their job.

“With many consumers in financial crisis, collection agencies are busier than ever,” said Assistant Attorney General Shannon Smith, of the Consumer Protection Division. “While they have a right to try to collect on debts that you legitimately owe, they must treat consumers fairly and cannot bully, inundate you with harassing phone calls or lie about what will happen if you don’t pay a bill.”

Complaints against collections agencies have grown steadily since 2001, when the industry ranked 8th on the Attorney General’s list of consumer complaint categories, to second place in 2007. Statistics from 2008 will be announced in March. In response, last fall the Attorney General’s Office assembled representatives of collection agencies to discuss legal regulations.

“Even though they provide an important service for businesses, collection agencies get a bad rap because nobody likes to be on the receiving end of the call,” Attorney General Rob McKenna said. “Unfortunately, it only takes a few bad collectors to generate a lot of complaints.”

Topco Financial’s clients include towing companies. The company employs individuals to collect on the original towing or impound fees, plus 12 percent interest. The Attorney General’s Office has received more than 120 complaints about the company since the beginning of 2005 from residents of Washington and a handful of other states. The business has an “F” rating with the Better Business Bureau.

The state’s complaint submitted today to Snohomish County Superior Court accuses the company; president Tracey Austell, of Mill Creek, and secretary/treasurer Harry Packer, of Desert Hot Springs, Calif., of violating the state’s Consumer Protection Act. Packer has also lived in Kenmore.

The complaint states that while attempting to collect on debt, Topco or its representatives frequently have:

Used harassing, threatening, intimidating, embarrassing and offensive language, including:

Disparaged debtors with comments including, “You got yourself into this [profanity] situation,” and “What kind of mother is she to raise a daughter like you?”

Threatening to “bi*ch slap” a debtor.

After having been informed by a debtor that she was undergoing tests for possible cancer, representatives allegedly replied, “Aren’t you dead yet? I’m going to collect the money from you dead or alive,” and “Why don’t you just die from cancer because you are a low-life deadbeat?”

Threatened to take action without lawful authority, including threatening to revoke, suspend or impair debtors’ driver’s licenses.

Threatened debtors with impairment of their credit rating.

Idaho’s Department of Finance issued a cease and desist order in September 2008 alleging that Topco Financial was not properly licensed to engage in collection activities in that state.


As a reminder, state and federal laws require that debt collectors treat you fairly, and limit when and how often they may contact you. You also have the right to write to a debt collector and tell them to stop contacting you, after which they can't contact you again except to notify you of legal action or confirm they'll stop contacting you. Additionally, a collector cannot pursue a debt that has been discharged in bankruptcy or that you’ve proven is not yours.

For more information about laws that regulate collection agencies, see

Consumers can file complaints about businesses on the Attorney General’s Web site at or call the Consumer Resource Center to request a claim form.

Complaint analysts can be reached from 10 a.m. to 3 p.m. weekdays at 1-800-551-4636.

Consumers should also be aware of the importance of filing a Vehicle Report of Sale with the Department of Licensing at the time they sell a car. The report of sale does not transfer ownership of the vehicle, but releases the previous owner from legal liability. If you do not file a report of sale, you may be held liable for parking tickets, impound fees, and other financial liabilities incurred by the new owner until they transfer the title into their name.

File online at
The best way to avoid calls from collection agencies is to pay your bills on time. Outstanding debt can lower your credit score, which lenders use to determine if you’re a good risk for a car loan, mortgage or credit card.

The Federal Trade Commission’s publication, “Knee Deep in Debt,” contains advice for those overwhelmed by bills:

For a referral to a local credit counselor, call 211 or visit the National Foundation for Credit Counseling Web site:

The Next Step: Banking, Investment and Credit Reform

How do we secure America's Financial Future?

Apparently, the traditional approach to managing risk in lending has failed. It appears that one of two things has happened. Either a comprehensive background assessment of a borrower's qualifications did not occur during underwriting at certain institutions (and those banks looked the other way in order to secure short term profits, bonuses and commissions); or, it is too costly for the banks to manage risk.

Well, many banks are managing risk effectively; so, apparently the other banks didn't care if borrowers were qualified or not. After all, the bad loans could be mixed in with good loans before they were sold to investors.

No doubt about it, greed contributed significantly to the current financial crisis.

Despite public outrage at being forced at "gun point" to bailout financial institutions, there is no justice to be found. The financial bailout isn't about justice -- it is about survival.

Without government help, there was a good chance our banking system would collapse, and that would result in gut wrenching pain for all of us.

Fact: on September 18, 2008 we had an electronic bank run of $550 billion in just two hours. Congressman Paul Kanjorske told media that the U.S. Treasury Department estimated that if they had not temporarily shut down the system and raised deposit guarantees, $5.5 trillion would have likely been withdrawn from the U.S. money market system by 2 p.m., effectively taking down our financial system.

Yes - apparently, that' s how close we came to a total collapse of the U.S. Financial System.

In the past, NYU banking professor Nouriel Roubini estimated that banking losses could peak at $3.6 trillion, which means the U.S. Banking System is Insolvent.

What happens when a banking system collapses? In 2007, Iceland was tagged by the United Nations as the most developed country in the world. But last October, the nation's banking system collapsed. Consequently, Iceland's currency lost about half of its value. Inflation is at 18.6% and rising. The Central Bank (Iceland nationalized it's banks when they collapsed) is charging 18% interest and unemployment has quadrupled. And all this happened before interest rates skyrocketed.

The worst thing about Government intervention is that it has the ability to distort the market -- and, we are just beginning to see the ripples of adverse economic effects. For example, If the banks earn interest on deposits at the Fed, will they be motivated to lend money to other banks? Where will businesses and citizens obtain credit, if a large portion of America's money is out of circulation?

I understand that a lot of folks, including myself, are outraged by the bank executive bonuses, corporate jets, brand new mega yachts, lavish parties or the consequences of moral hazard. But the most toxic part of the bailout is not the financial industry's in-your-face arrogance, its the distortion of the market.

Now that we know a few investment firms can undermine the entire financial system, we must take steps to protect taxpayers and consumers from this kind of behavior in the future.

There are no influencial lobbyists who will volunteer to do this on our behalf. (But there are plenty of financial industry lobbyists who are taking advantage of bailout money to lobby against us).

If we, (the American people) want to avoid another massive bank bailout in the future, we (the taxpayers) must insist Congress implement the following reforms:

1. First and foremost, enact reforms that prevent another bailout from ever taking place again. (This isn't the first bailout, but it better be the last).

2. Hold banks accountable - require banks and other institutions to account for how they are spending taxpayer funds.

3. Enact stronger consumer protections and new financial regulations to protect consumers from predatory lending practices.

4. Create a Consumer Credit Safety Commission with the authority and to rank and regulate the safety of banking products.

5. Place appropriate restrictions on how the remainder of the bailout funds are spent. For example, bailout funds may not be used to pay executive bonuses, commissions, corporate retreats, or lobbying.

6. When rescuing firms like AIG, require them to stop writing new policies and slowly phase them out. Corporations should not be rewarded for poor business practices. Nor should their competition be placed at a disadvantage because a bankrupt firm was rescued by the taxpayers.

7. Revamp the existing FICO Credit Scoring System and the Fair Credit Act. Too many market decisions are made based on an individuals FICO score. Credit report errors are increasingly difficult to fix and unscrupulous collection firms routinely sell old debts to new companies, (including debts discharged in bankruptcy) in order to make profits. It is estimated that over 50% of America's credit reports contain errors serious enough to prevent a borrower from purchasing a home or car at a competitive interest rate.

Today, many individuals have reduced FICO scores due to the recession. Credit scores are routinely used to determine how much we will pay for car insurance and home owner's insurance. (Apparently, we become crazed the second our score drops below a certain number).

To add insult to injury, many employers pull credit on job applicants. In other words, people who desperately want and need a job may be discriminated against because they have fallen on hard times through no fault of their own. Now there's a catch 22 if I ever saw one!

Finally, a number of states (including Washington) will cancel a person's professional license if they are forced to file for bankruptcy. In hard economic times like this, I can't think of an act that is more punitive than taking away a person's ability to support themselves.

Individuals are not responsible for creating economic recessions and governments should not cancel a person's professional license because they have suffered adverse financial impacts. Especially if the bankruptcy is caused by a medical emergency. 47 million Americans do not have health insurance. In other words, we can look forward to a lot of bankruptcies -- so, rather than punish people for events they have no control of, let's put America back to work.

8. Implement the recommendations of the Special Report on Regulatory reform of the bi-partisan Congressional Oversight Panel chaired by Professor Elizabeth Warren. The full report can be found at

Where did it all begin? Well, there is no simple answer to that question, but, just for grins, check out the article below.

U.S. law-makers reach compromise on banking bill - Oct. 22, 1999
The White House and congressional negotiators agreed early Friday on compromises that clear the way for passage of major legislation overhauling Depression-era banking and ...
Cached page

Allen Stanford served civil papers in $8 billion fraud case

Last Tuesday, Allen Stanford, of Stanford Bank was charged with fraud by the SEC. Stanford was served papers yesterday in Virginia.

MSNBC is reporting that the "FBI served civil papers" to the banker, who is accused of trying to bilk 50,000 clients out of $8 billion.

ABC is reporting that U.S. Marshals seized Stanford's assets, and clients have been flocking to Antigua to try and withdraw funds.

ABC is also reporting that Stanford is also under investigation in connection with an alleged drug money-laundering scheme for Mexico's Gulf Cartel.

Stanford's fleet of six private jets were recalled to the corporate hangar at Sugarland Airport outside Houston, including the Bombardier 500 luxury jet that was used exclusively by Stanford.
Stanford's 120 foot yacht, the Sea Eagle Bikini, docked at a marina in St. Croix is also likely to be seized, and SEC attorneys contacted marina owners in St. Croix to determine the precise location of the yacht.

Sean Hannity endorses Stanford's company.
Stanford's victims
speak out.

Thursday, February 19, 2009

The Flip Side -- is anyone in D.C. actually listening?

Here's a different perspective from Bill Cara's blogs Cara Community -- Capital Markets and Social Equity; Perspective and Discussion -- regarding a guest article he posted from Susan Templeton, branch manager of Loannetter here in Bellingham. Mr. Cara is a strong advocate for replacing the present banking system. Below, I've posted an excerpt from his blog posted earlier today.

"We need more Susan’s and more Rick’s to turn up the volume. If President Obama is actually listening to the people, I think we can agree that nobody is telling him that the present banking system needs to be repaired. It definitely needs to be replaced.

Independent mortgage, insurance and stock brokers and money managers are either under-utilized or unemployed, and ready to serve. If America is going to get back on track, these are the people who are going to do it. It’s not going to come from that place called DC.

All those hundreds of billions of dollars being spend will just go down the drain if they are put back into the hands of the eight bank CEO’s and the Fannie & Freddie CEO’s who recently testified. Their model was killed by their advent of the Credit Default Swap and the securitized mortgages and the rest of the financial engineering products that Wall Street is so proud to have given us.

I hope the President is listening because, unless he takes action soon, this could get ugly."

Susan Templeton kindly granted me permission to re-post her article regarding how mortgage brokers and planners in Washington are faring during the recession.

I own my local mortgage branch, licensed under a medium size broker network, based in Everett, Washington. My background is corporate marketing (prior to mortgage brokering) and I've traveled around the world, lived in Australia and New Zealand for some years and I've never seen an angry mob like this in my entire career.

The systemic and systematic poisoning of our ranks has been carefully plotted. Not to be too paranoid!

I wrote this plea for sanity back in September '08 which seems an age ago. Things have only gotten curiouser and curiouser since then.

Our effective strangulation has progressed along quite a planned strategy. By my estimate, in Washington we are down to less than 20% of brokers and loan officers still standing since the beginning of the public floggings of brokers began in mid 2007.

Every few weeks we get a new list of impending tighter guidelines from Fannie Mae and Freddie Mac. These days, FHA lenders can demand even higher FICO scores than some conventional lenders! These are the very institutions charged with assisting home ownership as their charter.

The obvious first signs of a strategy to shut down brokers were cut backs of wholesale lines by the likes of Washington Mutual. Odd since we originated a higher percentage of loans than they did in-house.

As banks started tumbling, blogs with 'implodometers' filled with bad news and rumors sprang up, gleefully watched by the big banks and national press. The blabbermouths including Kramer seemed to take particular interest in debasing mortgage brokers for originating sub prime loans as if that were all we ever did.

Followed a barrage of bad press blaming brokers as the cause of all 'bad loans'. (The very loans WAMU, Wachovia and Countrywide were pushing) A very bizarre period ensued fueled by massive national PR that all mortgage brokers were sleazy greedy crooks. Naturally, many of us stopped going to cocktail parties. I was asked at Christmas dinner how many 'toxic mortgages' I had stuck my unsuspecting clients with.

Our own state and federal lending laws have for some time now been pushing (bank lobby) to force brokers to give up our yield spread premium (rebate) as predatory. We are limited to how much we may charge on origination fees and yield spread. We must disclose every dollar. Banks are neither limited nor do they have to disclose their profit because it's 'their money'. Laws were passed to forced brokers to return a ysp fee and all commissions if any lack of disclosure can be found even years later by some disgruntled party. The same banks, while also taking a premium, do not legally have to declare ysp (we do of course)-this debate continues.

Our National Association of Mortgage Brokers is under funded by the likes of independent contractors on the ropes so their voice is a weak cry against the bank lobby. Our state Department of Financial Institutions, a regulatory body, took on investigation and prosecution as their tasks, outside their legal charge according to a very seasoned senior broker who helped write the state law.

A witch hunt ensued: the DFI investigated every brokerage in the state--literally every file-- to find paperwork amiss, issuing public lists of criminal acts and exacting fines, without court hearings (!) putting these firms out of business.

Our legalese disclosures grew from eight pages to thirty pages during this time frame. One such page has an FBI logo big as life proclaiming that mortgage fraud is investigated by the FBI. Rather alarming to an applicant to say the least!

Ender the national system of Loan Officer licensing --after January 08, One could not work under a broker without being licensed in any capacity. Not even a phone operator could be employed by a branch manager like me. We had to give up our assistants who couldn't get licensed. This process did kick out a few bad seeds, convicted felons, etc. We celebrated licensing for setting professional standards.

The latest insult is the broad daylight hijacking of the broker's responsibility to liaise with appraisers. Since brokers and appraisers are all crooks who have inflated home values, banks are taking back this right into the underwriting process. What this neatly accomplishes is that the borrower will be at the mercy of said bank (and so will brokers) to establish values upon which they may deign to lend. Lenders will hold right to these borrower paid appraisals forcing borrowers to accept their offers! Oddly, Realtors are able to communicate with appraisers (the last person they wish to speak with) according to the new Home Valuation Code of Conduct which is supposed to take effect May 1, 2009 Briefly:

All members of the broker’s loan production staff...shall be forbidden from: (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender; (2) any communications with an appraiser, including ordering or managing an appraisal assignment; and (3) ... communication with any appraiser.

An impending sense of doom has perpetuated our waking and sleeping hours these last two years. Every time the Fed or Greenspan or Bernanke opened their mouths our lenders would fall over or rates would zoom up in exact disproportion to the consumers expectations for 'lower Fed rates' (while we tried to educate the public on these realities in vain). The likes of Lending caused a race to online banking which has created havoc on borrower's credit due to the excessive abuse of credit pulling by such institutions.

Meanwhile, credit protection laws were being breached by loopholes within the agency bureaus, sanctioned by the Federal Trade Commission, allowing the Credit Bureaus (repositories) to resell actual credit reports on 'trigger lists' we brokers had issued to unknown list buyers.

Disastrous effects there: Credit Repair agencies sprang up. Loan Modification firms sprang up. Our spam exploded with these shysters.

I have a friend in the business who wrote this book if you care for an expose on bad bank habits. Carolyn Warren worked for several sub prime banks before writing this NY Times Best Seller.

So--why am I and my two loan officers still plugging away? We actually believe in this business. We are skilled at helping home buyers and investors establish clear priorities, see opportunities, and we deliver a superior product and service. We are committed to it. I for one feel things can only get better. Eventually smart borrowers realize that their bank is lazy and self interested when they see how well we advocate for them.

Thank you, Susan and Bill for shedding some light on this issue.

Rick Santelli, of Chicago is involved in the capital markets, and speaks out daily from his platform at CNBC. Bill Cara ventures to say there is not a banker in America who isn't familiar with Rick Santelli. Here, he's discussing moral hazards...

Lending Tree Mortage Link: