Free Market in Action
Check this out: http://biz.yahoo.com/ap/081006/mortgage_lawsuit.html
While Congress claimed this idea of loan principle adjustment by Bankruptcy Courts a sticking point in the bailout originally, here it is being practiced, the market at work fixing itself by doing that very thing in settlement of lawsuits over loans that were made by another company, the company Bank of America bought up, no less!
Of course liberal democrat Jerry Brown had to be mentioned in the AP article, making sure to keep the angle of the story one of "people are kept in their homes," helping the poor.
My trouble with it is that while mortgages in 11 states are adjusted, what about the rest of them? What about other banks? In the nature of the free market this will not be a unique occurrence.
What I mean is that if the total economy could be valued as has been suggested, through the DOW index, and we lost 1.2 trillion dollars in one day when 777 points disappeared from the "Big Board," then, how much is going to disappear with a group of loans where principle and interest is being adjusted downward? How much will this effect the future forecasts throughout the banking industry?
Now consider this in light of the dollar sliding further once 850 billion dollars is borrowed from the U.S. Treasury to buy "illiquid assets" off of banks books, a debit for a credit. Note this 850 billion dollars will likely be a greater amount soon, not only from the inclusion of California but numerous states who wrote the artificial FreddieMac and FannieMae property value increase curve into their revenue projections, and thereby budget expectations. Remember California in particular has Proposition 13, so as long as homes aren't selling there is no re-assessment, which you'll find their policy makers loathe http://www.entrepreneur.com/tradejournals/article/184699535.html.
Apparently "policy makers" not being able to just raise taxes is a problem when the government's whim by revenue projection and budget expectation is not being met, and, like Wall Street, they throw a tantrum. Somehow it is Prop 13's fault that government used Real Estate speculation as a basis for it's revenues. The fact that properties might increase in value, though they aren't now, is troubling for government, the great policy makers, since they cannot abuse the idea of "pay your fair share" by applying the percentage tax to the increased value they speculated. This is an increase in value that accrues to you as the owner but won't be realized until sale of the property, and this amount is generally available to be a tax upon the seller as a capital gain, while the re-assessment at higher value achieves a higher tax payment from the buyer on the same property -- funds "policy makers" wish to take in maintenance of budget increases which are their sole means to justify their existence.
I hope that It is obvious since the bailout passed, irrespective of 9:1 opposition by the American People, that we have learned better than ever that "it is the right of the people to tighten their belt while the prerogative of government to loosen theirs, even to the point another can fit in the same belt with us, and maybe a few more who will succumb to our whim, oh yes government will protect these."
Usually this "belt loop" includes those who handed politicians some election funds or carried the financial paper on some "landmark earmark" or similar fleecing of America, something the politicians appear to compete over to see who can get the most every year. Someone should write a "Congress' Book of Spending World Records," a roster of the records of our fiscal irresponsibility as compared to other nations, though that would probably just heat up the competition if it ever sold well.
But somehow, irrespective of California Policy Makers and their complaints with Proposition 13 and the state's decreasing property values, the State of California, speaking through Jerry Brown, can actually appreciate Bank of America's decision to adjust these loans and their interest rates down. Money, capital, knows nothing about this. It has no moral character, no idea of up or down, trends of any kind. But people, especially policy makers, will confuse the line of what is politically expedient with what is best for the state and the people.
Low taxes, particularly low property taxes, are good for the people, for it means that their equity remains with them. This means the people can be investing their money themselves, into the supply side of their economy even if merely spending it, versus the government taking it, and spending it at excessive rates beyond the amount of funds available, only to ask next fiscal year for more to do the same, and generally bail out a favored "beltfellow" who already received special perks but still failed. Apparently government operates by self proclamation of it's own supremacy of wisdom, or at least by taxation that appears what they assert, that they are wiser and more elite in the use of your money than you are. And the more you make, of course, the more you can afford, though that rule appears to escape the knowledge of government distribution schemes. Yet success is to government like a "mark" is to a con-man.
Almost entirely these bad bank loans, these "illiquid assets" we are to buy from Wall Street, represent what happens when there is a 3rd component of government demand empowered by liability through litigation as an influence in the market for together these pressurize every segment of the economy. Insurance is the balance of these for it uses the threat of the government (courts) to leverage the liability component of our lives, be it rich or poor.
When we look at this history of FreddieMac and FannieMae we see a banking system that had been running for decades with a down payment method which uses the Federal Reserve System to re-generate the credit issued, so the well doesn't run dry due to those who wish to have the fruits of labor without the labor. Long, and likely over-published today, story short, these institutions eventually were buying paper faster than they could sell it, to the point they had to lie on their books. The purpose and intention of FreddieMac and FannieMae in being created, to help the poor, was defeated by the very leaders of these organizations and their buying up loans of individuals that were not poor. Remember at the time these had been "privatized" and "quasi" government organizations, the use of our fund, the authority to claim certain legalities pertaining to loan acceptance by them, but not as a policing authority nor subject to the type of oversight that a solely government agency would be put through via the GAO and the Inspectors General, http://www.ignet.gov/.
So now instead of just having a market of banks and a market of people who deposit and eventually want to buy a home and raise a family, we also have government institutions which, as per usual, don't follow their own charter and promote specialized allowance and greed.
And further let's add in "low income loans" being an expanded throughout the banking industry due to banks being sued for civil rights violations when they didn't give loans to the poor "as a class," the people who FannieMae and FreddieMac were chartered to help. Litigation on their behalf may be a good thing because courts and their affidavits and declarations create a proving up of the plaintiff in the process of perfecting their claim. Someone's with good credit who doesn't qualify as "poor" would be unable to join the poor as a class in litigation without committing a great deal of perjury.
We end up here with a construct that is a mass of loans on the terms of no money down, an introductory interest rate (no saving grace of funds there), and without the person having an income.
I say construct because here is the actual conclusion:
The entire purpose of low income housing is the outright purchase of votes.
It is no secret that people who are on welfare will vote for the party that talks about helping the poor, offering up more welfare, just imagine the influence on this segment of the economy, including their relatives, when they can have a home for no money down, no interest and no proof of income. Corporations and businesses that rely on their credit lines for survival, their employees vote for the party that gives corporate welfare to keep the payroll running.
What makes this conclusion so obvious and certain is that these institutions, FreddieMac and FannieMae, are again government controlled and no longer in the private sector to "afford the great society" social agenda of Lyndon Johnson.
What I mean is: These institutions clearly solved nothing, their net gain is actually less than nothing, save political influence on the "phew I am lucky I got this house when I did because I couldn't qualify otherwise."
And this Bank of America settlement article proves what I mean. These same people are about to get another break and at our expense again because this de-valuing of these loans and the lowering of interest rates means less cash flow in the economies of these 11 states. Sure the people will be paying where they aren't now, but it will be less than they were paying before because the home is worth less. I am not against economic contraction, merely stating its reality for contrast to what government claims is a benefit, per Jerry Brown.
In the end government, state, local, and federal, could care less about the value of the property until political agendas are met first. While they seem to have negative impressions of proposition 13 during the housing boom, as one example, yet right now prices are falling in California, and proposition 13, due to the re-assessment after sale application of property tax, will assure the State receives it's tax on the basis of higher home values. Homes that were $400,000 2 and 3 years ago that are now worth $250,000 or less and owned by the same owner will be assessed at $400,000. The bank will have to pay that higher rate even after foreclosure since foreclosure is not a sale. Not good news for the banking community and maybe that's Bank of America's reason for settlement of this lawsuit, at least in California, though other states have passed similar measures to Prop 13 themselves. Settlement is a perfect example of the Free Market in action, adjusting to Government demands and intrusions to fix itself, of course at the hands of Governments counterpart: litigation.
Thank you for reading.
