Mortgage Meltdown: The American Proactive Way to Curing the Wounds

A lot of people are asking me what I think of the current proposal to bailout of the economic mess we are in. The Wall Street Journal and other mainstream media are now explicitly referring to us as a subprime government. Nobody is impressed with a plan that will cost, in actuality, at least the equivalent of the entire annual gross domestic product of the United States. Putting $700 billion (which will quickly turn into two or three times that) into the hands of a government that has been either so inept or so complicitous in this meltdown is clearly not the right thing to do even if for some reason there was some basis to trust them. The best anyone can say about the economic stewardship is that it was wrong so many times that we need to look elsewhere for the good ideas.

The bailout is aimed at the infrastructure instead of the victims. The mere announcement has resulted in a pounding of the dollar’s value, an unprecedented increase in the cost of fuel, and a further disillusionment with the United States government around the world. The resulting inflation, while ameliorated by the inevitable recession that will follow, will punish the middle class and poor citizens mercilessly into an emotional stupor.

If we can all agree that saving our country from being taken over by foreign interests is preferable to current events, then we must drop our ideological views and start thinking practically and proactively. In my opinion, the mortgage meltdown crisis and the crisis of the dollar can better be helped without spending spending tax dollars and in fact, by avoiding spending tax dollars. The money is right there already in the system — in what should be equity in home ownership. Many people had it until the slick salesmen called on the phone or came knocking on the door. We need to restore that equity, let those in the infrastructure fall if they can’t meet their obligations and let the rest of the infrastructure, which is largely unaffected by this meltdown, take their rightful place as the new leaders.

The choice is really much simpler when you take out the goal of saving the investment banks and lending banks who engaged in massive fraud. Sure we can find ways to help them, but not at the cost of ruining what is left of of the value of the American dollar.

There are two proactive routes we could take that would restore order and provide a solid foundation that everyone around the world would agree is real. That should be the goal, because for 30 years we have been creating vapor and calling it money. Now it has come home with a vengeance.

The first route is that which is proposed on this blog. In my opinion, in Florida, and probably all the other states, the mortgages and notes created during the 2001-2008 meltdown are invalid, unenforceable and represent no encumbrance on any home.

  • Through the use of existing laws and existing judicial procedures and rules of evidence, nearly everyone of them can be knocked down, leaving the country with millions of homes that are unencumbered with mortgages and notes, and restoring the wealth of the middle class and poor populations that were cheated, robbed, lied to and coerced into deals they didn’t understand.
  • It can even be used for foreclosure sales that have already occurred and homeowners that are distressed but not yet delinquent in their payments.
  • No taxpayer money spent, no blank checks, just recognizing that the wild ride of inflated appraisals and secret “gotcha” terms must be turned around — for the purpose of restoring wealth to the people it was taken from. Let’s stop pretending it didn’t happen. The word is out and each day we pretend that we didn’t lie, we didn’t cheat, we didn’t create fake money our credibility goes down further and further.
  • In simple terms, let then word go out that we are a nation of laws, that our leaders make mistakes, that we the people correct them, and we make good on our promises.
  • Now before you knock this down, keep in mind, that websites like this one are springing up all over the country, mortgage audit review services, lawyers, and former mortgage brokers are all getting into the act creating a cottage industry of saving homes from foreclosure. This movement, with your help, is reaching critical mass and it will happen whether you like the political ramifications or not.

The second way is more nuanced, but possibly more politically palatable.

It is pretty clear how this all evolved. Target areas were established. Target demographics were put on teh radar. And off went the armies of convicted felons who were now licensed mortgage brokers, spewing forth lies and collecting appraisers who would say anything for a buck, and getting title agents who would look the other way, and Trustees or “lenders” who would act without conscience, all conspiring to create the appearance of a booming economy in certain areas of the country, some more than others.

One idea that has been floated by Barnie Frank, the Clinton duo, and others, but which so far has not received much attention is adjustment of the mortgages to deflect the impact of the artificial conditions perpetuated by the big players. They didn’t just artificially inflate the price of one house, they did it to entire neighborhoods and cities. Now Cleveland and other cities are decimated.

It IS possible to identify those areas that were the target of this game and it is possible to assess the specific impact on each area. Thus it IS possible to reduce the mortgage principal, the terms of repayment and the other terms of the mortgages to conventional fixed rate mortgages that people can pay. The taxpayer again pays nothing. The effects are virtually the same as the first option. This can play out in bankruptcy courts with greater rights of “cram-down” or legislatively at the federal or even the State level.

The ONLY argument I have heard against any of these ideas is that some borrower is going to get some advantage he/she doesn’t deserve. Personally I don’t care whether they deserve it or not. I care about our country, our economy, and our standing in the world.

I care about being an American and being proud of it. Right now I hang my head in shame because we the people allowed our leaders in government and finance to fleece pensions funds, investment groups and wealth funds around the world with paper that the American issuers knew was worthless. I don’t care about who goes to jail or who gets some benefit they didn’t bargain for. I don’t care about who walks away with millions in their pockets. I care about the Flag of the United States of America, and to the Republic for which it stands. Don’t you?

6 Responses

  1. Jose,

    Great post. Being a former Politico, I find it interesting that both extremes of the political spectrum hate this bail out package and both say that it should help Main Street. Maybe because it’s an election year and everyone is worried about the electorate sending them packing.

    I don’t think Main Street should be bailed out. Main Street already has the tools to rebel against these financial overlords. They have the stones to take down Goliath. Those stones are what people like Neil, myself and others are educating people about. That is TILA and RESPA. These lenders are scared to death of people like us. I know from my own experience, that when a lender gets a certified letter from my office they jump. My clients and I get called back when lenders get my letters. Why? Because they know I’ll find something in the file and they’ll be paying dearly.

  2. Tuesday, September 23, 2008
    $5 Trillion Needed to Stop Bank Crisis, Says Japanese Expert
    Listen to this article. Powered by
    Ken Ohmae, former head of McKinsey’s Tokyo office (disclosure: I have a passing acquaintence with him and he was enormously well regarded in his day despite being a tireless self-promoter) says that the Paulson program is grossly inadequate and the magnitude of the US crisis is so large that a $5 trillion international facility is necessary.

    The quid pro quo of any international program is that the US would be put on a short leash, probably not as severe as the one to which Indonesia and Thailand were subject to in the Asian crisis. But the US is not good at austerity and has never been in the position of not being in the driver’s seat, so this sort of initiative would no doubt be rejected until it is too late for it to have much impact.

    From Bloomberg (hat tip reader Saboor):

    Treasury Secretary Henry Paulson’s $700 billion plan to buy devalued assets from financial companies is “a joke” because it doesn’t go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.

    Ohmae, nicknamed “Mr. Strategy” during his 23 years as a McKinsey & Co. partner, called for a $5 trillion “international facility” to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.

    “This is a liquidity crisis,” Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. “The liquidity has to be so big that people won’t get panicky.”…

    Ohmae, 65, is the author of management books including “The Mind of The Strategist,” “The Borderless World” and “The End of the Nation State.” Business Breakthrough, founded in 1998, provides online management training.

    One way of funding the $5 trillion facility would be through contributions from foreign exchange reserves in China, Japan, Taiwan, the Gulf states, the European Union and Russia, Ohmae said.

    An international relief effort on that scale might be difficult to coordinate, said Robert Howe, founder of Hong Kong- based hedge fund manager Geomatrix (HK) Ltd., which oversees $32 million. “I doubt the practicality of getting international cooperation on something like this,” he said.

    Ohmae compared the current financial crisis with Japan’s 15- year economic decline that began in 1989. Both started with a property bubble, which wiped out companies’ equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.

    The financial-market upheaval may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan’s “Viagra” economy and Australia’s “dig and deliver” boom may also fizzle as China weakens, he said.

    Against the backdrop of a potential global market panic, Paulson’s plan is insufficient, said Ohmae…..

    “He wants to fix problems one by one as if he were still the chief executive officer of Goldman Sachs,” he said. “He has to take his CEO hat completely off and come up with a systemic solution as opposed to a one-by-one solution.”

  3. Dear Mr. Garfield

    and to all the bloggers, as a local resident of the Washington DC Metro area. have to agree with you, these financiers, and the federal government are guilty of collussion, fraud and treason.

    Just spend some time reading the Reserve Board commentaries on Regulation Z and see how they colluded to water down the Truth in Lending Act.

    We need to share this valuable information with our neighbors, friends and family, even if they fail to realize the benefits of this effort.

    It is beyond shamefull, if the situation is so bad why did they take so long to act, why did the Federal Government and its representatives continuously lied about the STRONG FOUNDATION OF OUR ECONOMY. Not long ago our incredibly ill informed President was boasting about the how good our economy was, what changed? , Mr. Paulsons former collegues were about to go bamkrupt?.

    I am not in agreement with this bail out, I do not think that criminals should be allowed to continue to profit from us. I do not think they should continue to operatem their brokers licenses should be revoked.

    Let us set an example, they messed up with the people, they need to pay. they need to serve in jail. They have weakened our financial system and they have made a mockery of our home mortgage system. Their Pyramid scheme fell apart.

    By the way Mr. Grafield, can Pyramid Scheme laws apply on these mortgages????

    If I set up a pyramid scheme I go to jail, any contract signed under a pyramid scheme is therefore considered unenforceable. Can some one explore this???

    I have gotten information that a wide ranging investigation by the FBI has started on all those companies that created this mess.

  4. By fighting these corrupt banks and lenders, we’re at least doing something positive towards the economy, as the mortgage crisis is obviously a large part of what’s going on with it.


  5. Sadly, our government is so anal it’s beyond pathetic. Short of a major revolution in this country, I seriously have to wonder if our days aren’t numbered. So very much damage has been done by our current administration alone, and thus my sympathies truly do go out to the next one for inheriting this mess. I seriously have to wonder if anyone in their right mind would even want the job.

    And although the solutions the author has put forth here are very valid indeed, therein lies the problem. I doubt that anyone in a positon of power within our government is interested in actually fixing anything. Instead, they’re all too busy throwing gasoline on the fire. I also have to wonder if this is not by design. At this juncture, one has to ask themselves if our leaderhship is truly so inept, or if there isn’t a much more sinister motive behind all of this. Sadly, I tend to believe it’s the latter.


  6. I love your priciples, we the people need to work together to save this country and rid washington of the crooks who voted for all this crap.

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