It’s along time since I wrote this piece on March 1, 2007 — before I even started the blog. I believed then as I do now that the safety of our nation, the soundness of our economy and the happiness and freedoms of our children and grandchildren depend entirely upon our actions today. In this great experimental democracy the boss is us, not government. But if you let the servants of our governance run wild you will get wild results. The correction is in change of personnel and increasing our involvement in the process of change.
The simple truth is that the solution to the credit crisis lies not in issuing more unsound money that will result in downgrading the United States as an issuer, but rather in restructuring the transactions that defrauded borrowers here and investors around the world — without money changing hands.
It is an unfortunate hiccup in our history that we have become more afraid of our government than our government is of us. That isn’t the case in many other Western countries but it is certainly true here. In other countries a government bailout by printing extra money and giving it to the thieves that caused the problem would cause marching in the streets and worse. Here we sit idly by and hope that the people who got us into this mess will get us out. They won’t. They have no reason to do so. Sheila Bair at FDIC is absolutely right and is the lone voice in the wilderness although nobody is paying attention.
There isn’t enough money in the world or that can be printed to correct the financial markets. The entire approach is dead wrong and will lead to gross periods of inflation and contraction that are unprecedented. Nobody but the very few will be content. Obama is on the right track by addressing the world with truth and confidence, but actions speak louder than words. The “stimulus” could help the economy but only in the context of global economics where we are restored the community of nations with trust and respect.
The ONLY solution to the credit crisis is restoration of stolen wealth from the middle and lower classes through forgiveness of of debt obtained through deceit and ill-gotten gains. The ONLY way to do that without further damaging our standing in the financial world is to modify the debt obligations rather than eliminate them. The ONLY way to say to the world we can make amends is by restoring value to the investors who purchased those fraudulent mortgage backed and other asset backed securities.
The ONLY way that can happen is by restructuring both the borrower and the lender side and connecting the dots in between — allowing the giants to fall on their own swords, and allowing, in a free market, the thousands of other financial institutions (who are NOT in ill health because they didn’t play the game) to fill the void left by the collapse of the giants. Saving the giants is the wrong message to the world and will perpetuate the view that the United States is not trustworthy — that we are only interested in our own skins without concerns to morality or ethics.
The proposal: Restructure all mortgages to provide for the creation or increase of equity to all homeowners with mortgages. Provide for low interest rates, fixed rate for 30 years. Provide an equity appreciation clause that allows the “lender” to participate in increases in value of the home. The lower the mortgage principal, the higher the equity for both the borrower and the investor. Reinstate and re-structure the certificates of asset backed securities and provide for a government sponsored entity with congressional and OMB oversight to distribute the money received in payments from borrowers. The same can be done with credit card debt, student loan debt, auto loans and other consumer debt products.
The result: Value is restored to investors who were defrauded with a reasonable likelihood of receiving (a) a fair return, even if it isn’t as high they originally intended and (b) a return of principal that covers all or a substantial part of their investment. It is this “deal” that we breached in such a monumental and unprecedented way that needs to be restored. By addressing the broken promises and deals we address the issue: trust and truth. Looking inward is necessary now that our economy is trapped in the grasp of policies invented by the bullies in the school yard. But if we are ever to return to normalcy which in all events will take years, we must say to the world “I’m sorry, here is how we can make amends. Let’s start over again.”
Is your money Safe? Unlocking the Secrets of Banking
Neil F. Garfield March, 2007
INTRODUCTION:
The simple answer to the question posed by the title is no, your money is not safe and it is getting less safe each month. There are many reasons, only some of which are described in this article. This article is intended for the average person who puts his trust in banks or credit unions, by depositing his money. To a lesser extent this book also describes why the loss of the protections of the Glass Steagal act that preventing cross over between investment banking and depository banking has put not only the rest of your money at risk, but the entire economy.
This is intended as an alarm bell, but in truth most of the horses are already out of the barn. So while there are suggestions on how you can protect yourself, the bottom line is that you will have to become friends with ambiguity and taking your best guess. The information presented here will hopefully assist you.
For those readers who were elected or appointed to positions with legislative or regulatory power, I can only hope that in the vast bureaucracy that receives its principal income and donations from those whom they purport to regulate and control, there might be some individual of integrity, someone who can think beyond his next paycheck, a person who can think beyond the next election, and a patriot or who understands the gift we all received when the founders met, wrote and agreed upon the terms of our existence as a country — the U.S. Constitution.
For the rest of us, who are citizens in this great political experiment that has lasted over 200 years, let’s remember that we have a job to do. If we don’t do it, then we have nobody to blame but ourselves. We are the boss.
The final say as to who stays and who goes is strictly up to us. Our job is simple — get the facts, make our own decisions, act on those decisions and most importantly vote.
It’s not as as challenging as you think. If you can’t understand what some “expert” is saying then he or she isn’t saying anything of value, whether he or she is in politics, medicine, law or the clergy. Your safety, truth, liberty, privacy and the pursuit of happiness is completely dependent on whether you exercise your power as the boss of your democracy.
For those more technically minded, you are referred to the bibliography at the end of my planned book, and my more technical book aimed at members of the financial services industry entitled: Plan of Engagement: Banking in the 21st Century.
In both books, the assumption that bank consolidation has somehow benefited the economy or the average middle-class family is challenged outright. My conclusion is that while consolidation itself is not necessarily bad in theory, in practice it has resulted in a system that has institutionalized political corruption, anti-competitive practices, raised fees paid by customers and consumers, and is continually increasing the risk in deposits, loans and other forms of money creation by removing the personal element from banking.
Customers of banks and credit unions are mere account numbers and credit scores like the “kidney” in hospital room 202. Statistical assumptions lead to improbable and bad results. Personal knowledge of the specifics on the other hand, leads to a reduction of risk, and a greater likelihood of success.
JP Morgan understood banking better than anyone alive today when he testified before a senate committee and said that character, not money, not collateral and not financial statements, is the most important thing in lending. Character is now missing from both sides of lending and investment. Ironically, the companies that carry Morgan’s name are leading away from character and toward “moral hazard.” They have already sowed the seeds of the greatest calamity ever caused by the financial community.
It is all about figures which can be made to lie and mislead with ease.
The reason why the figures mislead us is that we don’t choose what to measure. We depend on others to make the choices of what to show us and tell us. People with a vested interest in maintaining their wealth, position or power determine what figures to give us, what facts to present. So for example, instead of measuring the value of all services and products, we get only certain classes of services and products included in the calculation of our gross domestic product as a nation.
We allow “experts” or politicians to present conclusions or “solutions” based upon their measuring the things of least interest to the average citizen and excluding those things that are of greatest concern to the average citizen. We are manipulated into a adopting and accepting or at least resigning ourselves to an ideology that doesn’t feel or look right but seems less smelly than the competing one. We hold our noses as we vote because in truth we know we don’t have the facts, we are not doing our jobs as voters and citizens, and we have put ourselves at the mercy of those who will show us no mercy.
It is my hope, at the conclusion of reading this article or even while reading, if you are so moved, that you will return the favor to them with a vengeance that they richly deserve through the courts, political action, and group protests. Those bonuses and ridiculuous salaries are coming off your food table.
It will happen whenever you choose to make it happen. The channeling of scant (and declining) wealth in the middle-class to a select few in the elite of our society is unrelenting. They will fight to keep it that way but that is where your rights as a citizen comes in. The ultimate power lies in your hands with a vote, and the ultimate power would then be with those employees of the voters who serve in elective offices to restore a level playing field and allow new business, new financial services and competing interests to work it out in the marketplace without being forced under the radar to compete in perfectly legitimate and productive ways.
Neil F. Garfield
March 1, 2007
Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, inflation, Investor, Mortgage, politics | Tagged: borrowers, credit crisis, investors, mortgage backed securities, MORTGAGE WORKOUTS, trust, TRUTH |
Damn Neil that was the very essence of Truth coming from the voice in the back of our heads that we constantly ignore and placate with “Im sure it will all work itself out” or “it’s not like my vote would make a difference anyway”, and to think you wrote it over a year ago. You hold the tools and characteristics along with the applicability to be what I would view as “The Perfect President”