Monday, July 14, 2008

Mortgage Disaster

I believe that banking institutions are more dangerous to our liberties than standing armies. (Thomas Jefferson, US President; 1743 - 1826)
The Mortgage melt down this year is having a large effect on the economy of the U.S. I have been reading much about it and would like to break it down somewhat. First is a professional journalist breaking down the situation.

"The financial crisis comes from the collapse of an $8 trillion housing bubble.
Banks—and many homeowners—made a lot of bad bets on the
assumption that housing prices would always go up.
The shadow banking system—including the off-balance sheet
entities set up by the commercial banks—borrowed massively to make those bets. They invented exotic securities and over the counter, unregulated credit swaps and the like to add layers and layers to the house of cards. Now it’s collapsed. The real economy is in trouble. Consumers have lost trillions in home equity and are tightening their belts."

The best way i can understand it, is that, mortgage lenders looking for larger markets began selling mortgage more and more to people who could not afford them. The mortgage institutions made the mortgages seem within reach for many families who dreamed of buying a house, but who always thought the American dream was financially out of reach. So lawyers went to work, and packages fancy deals, pay low or no interest, with no down payment. With wording like this even i can afford a house, in theory. As long as the mortgage seller gets their fee who why should they care if the mortgage ever gets paid off.

Hidden deep within the fine print is the word variable, and initial. low interest initially, with steep rises very soon.

Some other shadiness included; firms that rent assets to people to help them fraudulently qualify for a mortgage - like loaning them money to keep in their bank account for a couple months so they can fool the lender with documented savings that evaporate the day after the mortgage is signed. Another popular ruse: The borrower pays an employer to pay him a lot of money in a fake job for a month or two so he can show a fat paycheck in his loan docs. Some real estate agents and mortgage brokers actually refer buyers to these services.

Should home buyers have know better yes, but the people peddling them knowingly broke laws, or treaded very close to the line.

Practices that allowed these tactics to operate under this present Bush administration were illegal under Clinton. Additionally when lines were crossed and local district attorney's pursued the case they were harassed by the Bush administration. Bush not only allowed these illegal practices to occur but he let them FLOURISH by attacking any state that tried to pursue criminal prosecutions against those that broke the law.

Bush's shady tactics can be seen most visibly with the fall of Elliot Spitzer, NY Governor, who was the strongest critique of bush, and was in the process of organizing the governors of all 50 states to file a suit in court against Bush's illegal tactics.

On to the ponzi scheme, low income people were sold a shady illegal bill of goods, i.e a mortgage they could afford temporarily, before rates increased.

The mortgages were sold to bigger mortgage outfits, and bigger, ones, and the initial seller of the mortgage closes his shop door and is long gone by now. One reason the mortgages were packaged and sold quick to other lenders or to investment houses as stock, was because of a federal law limiting how many mortgages a mortgage lender could hold, by moving them quick they could be involved in more sales and more money

Next the mortgages are packaged together and sold as stocks on the NY stock exchange. But who would buy a stock if it was not given a AAA rating by the top ratings firms in the U.S. The stocks were given fake AAA ratings, meaning they were perfectly sound investments. These ratings firms were being paid billions of dollars by U.S. investment banks like Goldman and Sachs, who also sold the bundled mortgage stocks.

So who were the suckers that bought the stocks, normal investors, foreign investors, foreign banks and governments, cities and towns in the USA, pension funds.

And one day when the invisible ink of those mortgage contracts became visible, and interest rates and monthly payments went through the roof. This along with house prices falling in 2006 for the first time in forever, lead to many, many people, not able to pay their mortgages. And that's all it took for the entire house of cards to fall.

Soon enough the AAA rated stocks began to drop and drop and drop. And for all those companies who invested hefty sums in these AAA stocks big trouble was on the way, for some. And if your mortgage firm invested a large amount in these volatile mortgage's than you are also in trouble. And god for bid your state invested your pension in these funds, like Florida teachers.

Bear sterns crashed, their stock was went from over a hundred to ten dollars overnight. If you owned Bear Stern stock you lost. But if you owned JP Morgan stock you won.

When Bear sterns collapsed, they could not really allowed to collapse because a company that size falling could tear down the whole American economy, right? Or so we are told.

So usually the govt via the federal reserve bank (The bank lends the govt money so the govt can give it away to the bank, and the taxpayer pays the bill) will hand over money to the failing banks as kind of an economic I.V. In total close to 400 billion dollars was handed out since Summer 2007 to ensure large banks would not collapse.

Yet Bear Sterns was not given a bail out like many other banks, and like Freddie mac, and Fannie Mae will get this week. Instead JP Morgan was given a bailout in order to buy the dead Bear Sterns. Why not just give the loan to Bear? Well it just so happens that the federal reserve bank of new york, the organization who saved the day with the bail out money is run by a board, who sits at the chairmanship of the board, the CEO of JP Morgan bank. Sweet. and i know what your thinking, who else sits on the board, the CEO of Lehman brothers.

Now if you follow the situation, family cant pay mortgage, bank does not get paid, stock prices fall, banks in trouble, banks restrict loans, housing prices fall, more people in trouble.

The governments solution? Banks get bailed out with 400 billion dollars and counting, And for the people losing homes,they get bail a 2 billion dollar bailout. Why wouldn't the people losing their homes get the bailout? Wont everyone win like that? People pay mortgage, banks get their money and operate normal, stocks go up, investment firms have no problems, no one loses a home.

Yet the government, an institution set up by and for the people, once again chose to help corporations over people. This has been the choice time after time. Will it ever change?

Another theory for the govt backed bailout of large investment houses is, layed out by attorney Sean Olender, is, "The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process. "

Another issue is that home prices are depreciating so rapidly that many find it financially beneficial to simply default on there mortgage payment and lose the downpayment which was nothing. It makes sense, why pay your mortgage for a house you pay a total of 500,000 dollars for if its now worth 300,000 dollars a few months later? And California law, where home depreciation reached a staggering 40%, has laws that allow banks to keep only the deposit on defaulted mortgages.

Well the good news is that many states and towns who invested in these shady stocks are suing investment banks. For example, meryl lynch is being sued for for fraud and misrepresentation, of stocks sold to the city of Springfield Massachusetts.

The city of Baltimore sued Wells Fargo Bank for damages from the subprime debacle, alleging that Wells Fargo had intentionally discriminated in selling high-interest mortgages more frequently to blacks than to whites, in violation of federal law.

Cleveland Mayor Frank Jackson has filed suit against 21 major investment banks, for enabling the subprime lending and foreclosure crisis in his city

June 2008, California Attorney General Jerry Brown sued Countrywide Financial Corporation, the nation’s largest mortgage lender, for causing thousands of foreclosures by deceptively marketing risky loans to borrowers. Among other things, the 46-page complaint alleged that:
"‘Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers’ long-term ability to afford them and to sustain homeownership’ . . .

"The company routinely . . . ‘turned a blind eye’ to deceptive practices by brokers and its own loan agents despite ‘numerous complaints from borrowers claiming that they did not understand their loan terms.’". . .

Underwriters who confirmed information on mortgage applications were ‘under intense pressure . . . to process 60 to 70 loans per day, making careful consideration of borrowers’ financial circumstances and the suitability of the loan product for them nearly impossible.’
"‘Countrywide’s high-pressure sales environment and compensation system encouraged serial refinancing of Countrywide loans.’"7

In a 2007 ruling in Wisconsin that is now on appeal, U.S. District Judge Lynn Adelman held that Chevy Chase Bank had violated the Truth in Lending Act by hiding the terms of an adjustable rate loan, and that thousands of other Chevy Chase borrowers could join the plaintiffs in a class action on that ground.

AdDiToNal fAcTs
-So far 6 lenders have failed this year

-90 banks are considered to be in trouble

-the current secretary of the treasury is henry paulson, who's last job was ceo of goldman and sachs, the only investment house not hurt by this housing bubble

Thursday, July 3, 2008


Recently back from Peru, it was the first time i have left the country. My friends don't travel too much, Atlantic city a few times a year. My parents don't travel too often, they go down south to see my uncles a few times a year. I had many expectations and many worries, and i had some of my ideas about the world change, how could they not. For the first time things i have only read about and watched on TV i was able to see for myself.

I was there for a week but it felt like a month. I saw the rich areas, the poor areas, and the third world poor areas. But no homeless people, maybe one. I feel lucky because I saw the country with a friend who was born and raised there. I was able to see the Peru from a perspective that many have not. But I wish I learned Spanish first.

Being in a foreign country and not speaking the language, and being with one friend who spoke Spanish 95 % of the time makes you listen more than usual. It was funny to hear my friend get mixed up sometimes and talk to me in Spanish, and his local family in English.

Rich Peru-is what i saw first, right from the airport, we went to family close to Lima, the capitol. There house looked just like middle class here, nice furniture, nice TV, nice bathroom, crystal figurines, etc. In Lima we went to a major mall which was just like Roosevelt field, except more busy, much more busy, and outside they had people selling homemade items from all areas of Peruvian culture. A little outside of Lima we saw this new, really fancy beach tourist attraction. It was a mall, with restaurants, on a wooden boardwalk, a few hundred feet above the ocean. Gorgeous, and the best part was this is where i heard the most English being spoken. When you are in a Spanish speaking country and you speak with one person in English, and all of a sudden you run into many English speakers, they feel like family.

The first thing that caught my eye was every house, store, or building, was surrounded by a tall wall or a tall metal fence. Every window had bars on it.

Poor Peru-This is where i stayed with my friend. at the end of a dirt road, a top a hill, which sucked climbing at the end of each day. What an Oder his house had. Even though we were in a poor area, chosica, some houses had nice marble tiles on the front wall of their house. At the end of his street was a dirt stair case that lead to houses that were built on a mountain. No TV, an electrically heated shower, which gave me an electric shock the first time bc i forgot to shut the electricity off before i shut the water off, note to self, try not to get shocked while in shower and wet.
The market is really cool and old school. For short trips you take a little motor scooter that is rigged with two seats in the back and covered for protection from the elements. At night some of the kids have neon lights, and spider web designs that light up, and techno music. To travel further you can take a normal taxi or a bus. For the taxi don't expect to be the only pick up, they as well as the bus stop for every person on the street to see if they need a ride. one trip into the highlands we took a bus for two hours and a car for half and hour, and we stuffed two people in the wagons trunk.

Another thing that you notice is the mountains, everywhere, most of where i was was in the middle of a valley. it was pretty gorgeous to wake up and seeing that every morning. And i was laughed at when i asked, "are those the Andes", no i was told, they are too small.

Third world poor- to get here, a town called chicklay, you take a two to 3 hour bus and taxi ride up a winding mountain pass into the highlands. One lane in each direction. Often our bus/taxi found itself behind a really slow 18 wheeler, so we inch into the oncoming traffic lane, to see if any cars are coming, and if we have enough time to go for it before there is a bend ahead that we cannot see around. Do i have to tell you we had a few close calls.

Our trip ends at 3700 meters, which by my numbers is about 11 thousand feet and it took me about two hours to stop feeling like crap from being up so high. The houses up here were not protected with high walls or metal bars. The walls and the ceiling of the house was sheets of steel, the toilet was a whole in the floor, with two bricks to use to squat, and a bucket of water outside to splash inside when done, also know as the third world flush. Dogs roamed the streets free, most of the time, stopping at home than running back out again. And the starts at night, wow, i have never seen anything like it.

The first trip up there we spend all night there, making homemade alcohol called chicha, talked, ate, drank coffee, and stronger stuff, and sat really really close to the fire bc it was feekin cold.
The second time we came up the highlands of chicklay, we hiked a mountain, and goddamn its hard to hike when you are already having a hard time just sitting at 11 thousand feet. The hike started out ok, than progressively became steeper , and the path grew narrower and closer to the edge. When we finally made it to the top i thought i would die. I never felt so shitty in all my life, yet i am so glad i finished the climb. I had two cups of coca tea, which greatly help my shitty feeling and we climbed down a few hours later. On the way up all i said to myself was i cannot wait to climb down, its gonna be easy, NOT. i have never been so focused and full of attention in all my life, well at least after the first time i slipped on the dry moving rocks, on to my ass, about three feet from the edge. I gave myself a 50-50 chance of falling right off, my legs so tight, gripping every step. I was so happy to finish, and could not wait to fall asleep that night.

The next day and one of the last days of my journey we went to Lima, off the beaten path, just think of Brooklyn to Manhattan , was to where we were to Lima. Where my friends cousins, from Lima, asked me if i wanted to try to walk through this bad area, where there was a high probability of getting robbed, cool, lets do it i say. Lucky us the town was street cleaning that day and they sent the military to help.

We got to see Lima's china town, and they do have damn good Chinese food, we went on two church tours, into the catacombs, and one church, St. Francis i think, had the oldest library in south America, from the 1500's, with gorgeous would work, and tile. We saw the presidents house, congress, the supreme court.

Going to Peru, here are some notes, the money is soles, 1dollar USA=2.70 soles, foods= anticuchos(grilled sliced cow hearts), ceviche, beef stir fry with french fries, boiled potato with cheese sauce, fresh cheese sandwich, inca cola soda, rotisserie chicken,
my most used word, was benitto, beautifull, taxi and bus don't ask how much , if you do they know your not from the area and they will charge extra, if your not sure, give em 5 soles, if its more they tell you if not you get change, local taxi's 2 soles, an hour an a half bus ride was 8 soles for two, and and hour and a half bus ride in a fancy bus was 17, ride to the airport, one hour, 75 soles,
when going to or from airport, do not use people on the street call a company in the phone book, this ensure legitimacy and better chance of safety and trust.

pictures on the way