Shadow Foreclosures: Over 500,000 Az Homeowners Underwater

Yes, we can help at livinglies, but the numbers are so high that there is no way we have the resources to help everyone. Lawyers, accountants, analysts and others should be seeing this as a major opportunity to do well for themselves and for the owners of these homes by challenging the rights of the those collectors who are taking their money now, or demanding payment or threatening foreclosure. Arizona lawyers have been slow on the uptake here and in so doing are potentially setting themselves up for future malpractice claims for anyone, whether they aid or not, who received advice from the lawyer that was not based upon the realities of the securitization scam.

Call 520-405-1688, where you can get help in documenting the fraud, help in drafting the documents, and help in finding a lawyer. If you are a lawyer involved in foreclosure defense, bankruptcy or family law, you need to to start studying the real facts and the strategies that get traction in court.

We are planning a possible new Arizona seminar for lawyers, paralegals and sophisticated investors or homeowners. But we will only schedule it if we get enough calls to indicate that the workshop will at least pay for itself. It is a full day of information, strategy, role-playing and tactics to use in the court room.

Editor’s Analysis: Despite loosening standards for principal reductions and modifications, the foreclosure activity across the country is increasing or about to increase due to many factors.

The bizarre reason why the titans of Wall Street want these homes underwater combined with the miscalculation of the real number does not bode well for the housing market nor the economy. With median income now reported by the Wall Street Journal at 1995 levels, and the direct correlation between median income and housing prices you only need a good memory or a computer to see the level of housing prices in 1995 — which is currently where we are headed. As the situation gets worse, the foreclosure and housing problem will become a disaster beyond the proportions seen today.

Wall Street NEEDS foreclosures — not modifications, principal write-downs or settlements. The reason is simple. They have already received trillions in bailouts from the Federal Government. All of that was predicated upon the homes going into foreclosure. If the loans turn out to be capable of performing, many of those trillion of dollars ( generally reported at $17 trillion, which is more than the total principal loaned out to all borrowers during the meltdown period), the mega banks could be facing trillions of  dollars in liability as the demands are properly made for payback. The banks should not be allowed to collect the money and the houses too. Neither should they be allowed to collect the bailout money and keep the mortgages.

The “underwater” calculation is far off the mark. If selling expenses and discounts are taken into consideration, the value of homes used in that calculation is at least 10% less than what is used in the underwater calculation, which would increase the number of underwater homes by at least 15% bringing the Arizona total to nearly 600,000 people who know now that they will never see valuation even coming close to the amount owed. The prospect for strategic defaults in Arizona and elsewhere is staggering —- totaling more than 10 million homes  — or nearly twice the number of foreclosures already “completed”, albeit defectively.

As stated in the article below there is, as we have been saying for years, a huge difference between home prices and home values. Home prices can be pushed up or down based upon external factors In this case it was a flood of what looked like cheap money that is now apparent was neither cheap nor even money (because the named lender never made the loan). Home values and home prices should over the long run track each other given no manipulation of the marketplace which is exactly what Wall Street did. Home values, based upon the Case-Schiller index and thousands of other economists are based upon one simple variable — median income. Median income is now at the lowest point since 1995. That means home values are, after selling expenses and discounts, less than 90% of 1995 prices.

It is simply inevitable that people will take the hit on their credit and walk away from the homes rather than pay $200,000 for on-existent equity and that is exactly what Wall Street is counting on, forcing through its manipulation of government policy and spinning to the public media. If those homes do not go into foreclosure the mega banks’ scam will reveal itself, the assets on their balance sheet will vanish because they never existed anyway and the banks will fall. Whether they are too big to fail or not, they will fail — unless foreclosures spread out across the land.

by Kristena Hansen, http://www.bizjournals.com

Roughly 40 percent of all mortgaged homes in Arizona were under water during the second quarter of 2012, the third-highest negative equity rate in the nation, according to a report released Wednesday by CoreLogic Inc.

In raw numbers, that translates to about 521,600 homeowners statewide being under water for the quarter out of roughly 1.31 million total mortgaged homes, the report said.

Arizona’s negative equity rate was much higher than the national average of 22.3 percent (10.8 million homes) of all mortgaged homes that were underwater during the same period. That nationwide figure was also a gradual improvement from the first quarter’s 23.7 percent negative equity (11.4 million homes).

CALCULATING NEGATIVE EQUITY

Negative equity, or being under water, refers to homeowners who owe more on their mortgages than their home’s present estimated value. CoreLogic determines negative equity rates by the number of underwater homeowners versus all residential properties in a certain area with an outstanding mortgage.

CoreLogic experts say the improving negative equity landscape nationwide is largely due to the recent rebound in home prices, dwindling sales of lender-owned properties and low inventory of existing homes.

Home prices and home values, however, are distinctly different. Prices represent how much homes actually sell for, while home values are only an estimate and are therefore much harder to determine.

Michael Orr, a real estate expert at Arizona State University, said home value estimates will vary widely depending on who is making the assessment. That makes it tricky to hone in on best practices for calculating negative equity, he said.

Sam Khater, deputy chief economist for CoreLogic, explained how his firm makes its determinations.

Underwater homes under 40 and over 55 still in dire straights

Obama response unclear. He keeps saying that the  object here is not to include “undeserving” borrowers who are just trying to get out of a bad deal a deal that went bad or whose eyes were bigger than their pocket book. As long as he keeps saying that he is missing the whole point. This was a Ponzi Scheme and even if the borrowers were convicted felons behind bars they would still be victims of THIS Scheme. ALl the elements are present — identity theft, diversion of funds, false documentation to both sides, fabrication of documents as the lies came under scrutiny, forgeries, surrogate signing, robo-signing, and profits 1000 times the usual profits for processing or originating loans.

None of these profits were disclosed to either the lender-investor nor the homeowner borrower, violating a myriad of mending and contract laws. It doesn’t matter whether the borrower is perceived as deserving relief — they all are if they were fraud victims.

If the average guy on the street knows we have been screwed without all the economic statistics, why won’t Obama at least acknowledge it?

See Vast geography contains underwater homes inviting homeowners to walk away from homes they are willing to pay for

It’s Not Even a Bubble: Foreclosures on the Rise

Featured Products and Services by The Garfield Firm

——–>SEE TABLE OF CONTENTS: WHOSE LIEN IS IT ANYWAY TOC

LivingLies Membership – If you are not already a member, this is the time to do it, when things are changing.

For Customer Service call 1-520-405-1688

Editor’s Comment: Realtors and Banks want you to think that you need to buy now before the  market takes off and prices spiral upward. I say don’t believe a word of it.

If you are buying to live in a house, you should know that the actual and shadow inventory of foreclosures will keep intense downward pressure on housing prices for many years to come. Some estimates, including mine, are that the housing market might take more than 10 years to recover and that it could be as much as 20 years. This is why so many people are renting rather than buying. Rental values are going up because there is actual demand for renting.

If you are buying for investment, see the above paragraph. You might have a viable investment if you are willing to stay in for the long pull and you are willing to take on the duties and obligations of a landlord.

If you are selling and you are waiting for the market to bottom out, or maybe you see a spike and you think you’ll wait just a little bit longer to get a higher price, forget it. Sellers, as realtors will even tell you, are mostly unrealistic about the sales price of their property. This is because they bought or once saw the price of their property at twice the price as the offers now. The reason is simple — prices went up but values stayed the same or even declined. The difference between prices and values has never been as big a deal as it is now.

Prices can be forced up by actual demand but never as much as we saw from the late 90’s to the peak at 2006. The prices went up because the payments went down or appeared to go down.

Free money was everywhere and nobody was reading the fine print or even questioning why Banks would offer such deals as teaser rates and other nonsensical things to entice people into signing up for mortgages, whose payment would eventually rise above their household income or where the payment was the equivalent of doubling the interest rate because they were going to be sitting with a home that declined to its real value.

The truth is that even if a recovery eventually occurs, it will be 20+ years before we see those prices again. And that will only result from inflation which eventually will pick up steam.

And by all means remember what I have been writing about these last few weeks. The title they are offering you, with a deed signed by a bank, or even a satisfaction of mortgage signed by a bank may not be worth the paper it is written on and the title policy normally excludes that sort of risk from what they  are covering in title insurance. So if you don’t pose the hard questions and negotiate a real title policy that covers all the known risks, you could be the angry owner of a white elephant that cannot be sold later nor refinanced.

From CNBC:

Home prices rose, just barely, in the second quarter of this year annually for the first time since 2007, according to online real estate firm Zillow. That prompted the popular site to call a “bottom” to home prices nationally. The increase was a mere 0.2 percent, but in today’s touch and go housing recovery, that was enough.

Nearly one third of the 167 markets Zillow tracks in this survey saw annual price gains from a year ago.

“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.”

Zillow’s report, which compares prices of homes sold in the same neighborhood, also showed a stronger 2.1 percent gain quarter to quarter, which is the biggest uptick since 2005. The biggest price gains, however, are in the markets that saw the biggest price drops during the latest housing crash. Phoenix, for example, saw a 12 percent annual price gain on the Zillow index.

That has other analysts claiming that the overall surge in national prices is due to price bubbles in certain markets.

“Strong demand, particularly in areas of California, Arizona and Nevada, are pushing up home prices very quickly in the short-term. And because many of the home purchases in these areas are cash transactions, there appears to be less braking of prices by our current appraisal system than seen in other parts of the country,” noted Thomas Popik, research director for Campbell Surveys and chief analyst for HousingPulse. “The trend raises the distinct possibility of housing price bubbles emerging in some of these hot housing markets.”

The supply of foreclosed properties for sale has been dropping steadily, as lenders try to modify more loans or actively pursue foreclosure alternatives, like short sales (where the home is sold for less than the value of the mortgage). Investors, eager to take advantage of the hot rental market, are having to spread out to more markets in order to find the best deals.

Mortgages
30 yr fixed 3.54% 3.32%
30 yr fixed jumbo 4.21% 4.25%
15 yr fixed 2.96% 2.91%
15 yr fixed jumbo 3.42% 3.52%
5/1 ARM 3.02% 2.93%
5/1 jumbo ARM 2.86% 3.14%
Find personalized rates:

“We were heavily into Phoenix early in the cycle. Those markets are heating up,” said James Breitenstein, CEO of investment firm Landsmith in an interview on CNBC Monday. “We see a shift more to the east, states like North Carolina, Michigan, Florida.”

While home prices on the Zillow index are improving most in formerly distressed markets, like Miami, Orlando and much of California, they are still dropping in other non-distressed markets, like St. Louis (down 4 percent annually) Chicago (down 5.8 percent annually) and Philadelphia (down 3.5 percent annually).

“Those people looking at current results and calling a bottom are being dangerously short-sighted,” said Michael Feder, CEO of Radar Logic, a real estate data and analytics company. “Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.”

Radar Logic sees price increases as well, but blames that on mild winter weather that temporarily boosted demand. This means there will be payback, or weakness in prices during the latter half of this year. And even without the weather hypothesis, they see further trouble ahead:

“On the supply side, higher prices will entice financial institutions to sell more of their inventories of foreclosed homes and allow households that were previously unable to sell due to negative equity to put their homes on the market. As a result, the supply of homes for sale will increase, placing downward pressure on prices. On the demand side, rising prices could reduce investment buying,” according to the Radar Logic report.

Investors are driving much of the housing market today, anywhere from one third to one quarter of home sales. That makes these supposedly national price gains more precarious than ever, because they are based on a finite supply of distressed homes and that supply is dependent on the nation’s big banks. First time home buyers, who should be 40 percent of the market, are barely making up one third, and millions of potential move-up buyers are trapped in their homes due to negative and near negative equity.

BUY THE BOOK! CLICK HERE!

BUY WORKSHOP COMPANION WORKBOOK AND 2D EDITION PRACTICE MANUAL

GET TWO HOURS OF CONSULTATION WITH NEIL DIRECTLY, USE AS NEEDED

COME TO THE 1/2 DAY PHOENIX WORKSHOP: CLICK HERE FOR PRE-REGISTRATION DISCOUNTS

FLORIDA BEWARE!! FBA non-judicial foreclosure initiative

Florida Bankers Association, controlled by national and supersize regional banks are trying to convert Florida to a “non-judicial state.”

DON’T LET IT HAPPEN!!!!

Start writing letters and get others to write letters to the Republican controlled Florida legislature. This effort will not only deny homeowners essential rights it will vastly increase the pace of foreclosure sales, thus crashing the market values of homes across the state even further. Taxes will go up, services will go down.

THE ENTIRE REASON IS THAT THE WALLS ARE BEGINNING TO CLOSE IN ON THE PRETENDER LENDERS AND THEY WANT THE LAX RULES OF NON-JUDICIAL PROCEDURE TO LET THEM STEAL MORE HOMES AND WEALTH FROM BOTH HOMEOWNERS AND INVESTORS WHO FUNDED LOANS.

Banks say cut out the courts

By James Thorner, Times Staff Writer

Published Thursday, January 28, 2010


If bankers get their way, Floridians facing foreclosure could be kicked out of their homes in as little as three months.

The Florida Bankers Association, the 400-member-strong lenders’ lobby, has presented state legislators with a bill to upend decades of Florida law and establish “non-judicial” foreclosures in Florida by July 1.

What’s a non-judicial foreclosure? Banks would accelerate foreclosures against defaulting homeowners by bypassing the courts. Judges would no longer rule on foreclosure cases.

Some states — 37 in fact — already grant that fast-track foreclosure authority, including California, Georgia, Alabama and Texas. But Florida, with its plethora of vacation and retiree homes, has always been big on homeowner rights.

If you’re a financially strapped Florida homeowner — 62,719 Tampa Bay properties got foreclosure notices last year — the 53-page bill contains worrisome signs:

• Non-judicial foreclosures must conclude in no less than three months and no more than a year. Most Florida foreclosures take a year to 18 months to work through the courts these days, longer if a lawyer fights a successful rear guard action. So in 90 days banks can theoretically auction the home out from under you.

The Florida Supreme Court’s newly endorsed mandatory mediation for lenders and homeowners would effectively go bye-bye. The bill provides only for informal meetings between creditors and debtors.[Editor’s Note: This triggered the FBA action. By ordering mediation, the creditor/lender would be required to be disclosed and the whole scheme would fall apart]

• Even after homeowners are evicted, banks can still pursue them for unpaid mortgage debt. But banks will waive that right if homeowners avoid trashing or stripping the house before the new owner takes over.

The bankers association has titled the bill The Florida Consumer Protection and Homeowner Credit Rehabilitation Act. Association president Alex Sanchez views the bill as a way to break a foreclosure crisis partly caused by mortgage fraud. [Editor’s Note: Old trick — name it something that conveys the exact opposite meaning of the bill].

He offered a list of innocents the bankers aim to help: neighbors annoyed by abandoned houses next door; condo associations pursuing dues from properties in legal limbo; cities grappling with urban blight; and judges overloaded with thousands of foreclosure cases.

“We don’t want the property. We’re not into the property management business,” Sanchez said of bankers. “We want to get a property out of the courts and sold to a productive Florida family.”

Finalizing a foreclosure is time-consuming and expensive. The longer a property lingers in the courts, the longer banks get no mortgage income from the property. One Tampa mortgage banker revealed this month that each foreclosure can cost lenders an additional $30,000 in legal fees.

The law would apply to foreclosures after July 1, not old cases already in the courts. Kristopher Fernandez, a Tampa foreclosure attorney, blames the banks themselves for much of the judicial foot dragging.

“These cases are stuck in legal limbo because banks don’t want to push foreclosures,” Fernandez said. “I’ve seen cases where nothing is done. The lenders don’t want these homes back. They know they have to pay assessments once they take them back.”

Pinellas-Pasco Chief Judge Thomas McGrady backs up that point. McGrady has talked about a “dam” in the courts from banks reluctant to schedule sales of foreclosure homes.

What’s the chance of this legal revolution getting consideration? The Florida Legislature convenes on March 2. As of yet, the bill has neither an official number nor formal sponsors.

With populism resurgent and anti-banker attitudes rife, passage could be a stretch. Gov. Charlie Crist would have to sign a pro-banker bill as he’s contesting a U.S. Senate seat with state Rep. Marco Rubio.

“We’ve had conversations in both chambers to have it filed,” said Anthony DiMarco, the bankers association’s executive vice president of government affairs.

“Sure, it’s a change in Florida law. But it will help us get to the bottom of the foreclosure crisis faster.”

Home Sales Stall: Millions of Homes in Real Inventory

Editor’s Comment: Any lawyer who does not think that issues relating to foreclosure will not dominate his or her practice of law is in a state of denial and delusion. The 16% drop in new home-sale contracts (see article below) means a similar or worse drop in sales over the next 30-60 days.

As we have said repeatedly along with the major newspapers, there is no relief in sight without principal reduction on mortgages. It’s not a matter of ideology or even law. It is a matter of pure practicality. The choice is between a total loss and a partial loss.

More and more articles and reports are emerging that clearly show that millions of homes are going to be abandoned and suddenly added to the foreclosure lists simply because the owners choose to take the FICO credit score hit and rent a comparable house for a fraction of the payments demanded under their crazy inflated mortgages.  Really, why continue to pay on a $500,000 note for a property that is worth $300,000? Why? hope you will break even in 5-10 years? Just not a good business decision.

In the anti-deficiency states like Arizona the “lenders” (who incidentally don’t qualify as creditors) can only take the house. In the states that permit pursuit of the deficiency judgment, it is a waste of time and money because nearly everyone is basically cleaned out — no cash, no savings and no available credit. So there is no point in continuing this farce any further. The homes are not worth what is owed and never will be worth that amount even after the market “recovers”.

Now add to the equation that the parties being ordered into mediation, modification or attempting short sales or settlements are mismatched: one of these things is not like the other. On the one side you have people who really own a home and on the other you have people who don’t even know who the creditor is much less possess the authority to approve a short sale or settlement or issue a satisfaction of mortgage.

There is no way out except through principal reduction or letting the entire housing market collapse into chaos. The real crisis is coming over the next few months. The “Great Recession” was just the appetizer and although there is time to avoid the full impact of what was done on Wall Street, it seems unlikely that anyone in office is willing to “call it” like the doctor announcing the time of death.
January 6, 2010

Slowing Pace of Home Sales Raises Fears of New Retreat

The number of houses placed under contract fell sharply in November in the first drop in nearly a year, figures released Tuesday show. It was the clearest sign yet that predictions of another downturn in real estate may become a reality.

The National Association of Realtors said that its index of pending home sales plunged to 96 from a revised level of 114.3 in October. Analysts had predicted a drop, but nothing like that.

“We thought it would drop 2 percent,” said Jennifer Lee of BMO Capital Markets. “When you see 16 percent, the first thing you say is, what the heck happened here?”

Since the majority of pending sales become final in six weeks to two months, the index is considered a reliable indicator of where the market is headed. The index is calculated by comparing the number of pending sales with the level of 2001, when the index was formulated.

The data indicates that the weakest parts of the country are the Northeast and Midwest, both of which fell 26 percent in November from the previous month after adjusting for seasonal variations. The South dropped 15 percent, while the West was off 3 percent.

Ms. Lee called the drop from October to November “unnerving” but said that the index remained well above the level of a year ago. In November 2008, when the financial crisis was at its peak and buying a home required a faith in the future that many did not feel, the index was 83.1.

As the overall economy improves and the employment situation grows a little less dire, the question becomes whether real estate can muddle through — or if it will need a new round of government support to ward off another damaging downturn.

There are plenty of reasons for worry. The Obama administration’s effort to compel lenders and servicers to modify loans has not been a success. Many of these owners will eventually lose their homes to foreclosure.

Meanwhile, a quarter of homeowners with mortgages owe more than their houses are worth. If prices start dropping again, some will be induced to walk away, further undermining the market.

“I wouldn’t rule out more stimulus, especially in an election year,” said Ivy Zelman, an analyst.

Last year’s stimulus efforts, however expensive and divisive, calmed a market where prices had plummeted by a third. Even now, the government’s efforts to push down interest rates and entice buyers with a tax credit appear to be having an effect, keeping a weak market from getting weaker.

Walter Martin and Paloma Munoz, artists in Dingmans Ferry, Pa., are a stimulus success story. They are paying $360,000 for a new home 10 miles away without even having an offer for their current home.

“The new home has enough space for us both to have studios,” Ms. Munoz said. “The price is amazing, we are getting a mortgage at a 5.125 rate, and we qualify for a $6,500 credit.”

It is a leap of faith, she acknowledged, but an eminently sensible one. “When houses were expensive, everyone wanted to buy, and now that they’re cheap everyone is scared,” she said.

Buyers like Ms. Munoz and Mr. Martin are outnumbered, however, by people who think the market still has room to fall. While some of these may indeed be scared, others simply see a virtue in patience.

“With two growing boys, we are busting out of our small house,” said Stephen Sencer, deputy general counsel at Emory University in Atlanta. “But I’m still waiting for sellers to capitulate.” His agent is telling Mr. Sencer that may happen in the spring.

Starting from a low of 80.4 last January, pending sales rose for nine consecutive months in 2009. The index proved a harbinger of both completed sales, which began climbing in April, and prices, which started rising over the summer.

As the Nov. 30 expiration of the tax credit drew near, would-be buyers hastened to secure deals. Sales in November roared at a 6.54 million annual pace, the highest since February 2007.

At the last minute, Congress extended and broadened the credit. The urgency immediately dissipated. “We were really, really pushing hard, and I think everyone just wore out,” said Steve Havig, president of Lakes Area Realty of Minneapolis.

Buyers now have until April 30 to qualify for the credit. Many analysts say the effect this time around will be mild.

“It could turn out the second credit has such a small impact it doesn’t show up in the data,” said Patrick Newport of IHS Global Insight.

Nevertheless, he predicts the downturn this time will be gentler. “The economy is improving, and that is what the market needs to get back on a sustainable path,” Mr. Newport said.

Long before the tax credit ends, another stimulus effort is due to disappear. The Federal Reserve has bought more than a trillion dollars of mortgage-backed securities in a successful effort to push down mortgage rates. The Fed is scheduled to wind down the program by March 31.

Rates are already moving higher, exceeding 5 percent in some lender surveys. Perhaps as a result, mortgage applications to buy homes in late December were a third lower than during the corresponding period in 2008, the Mortgage Bankers Association said.

The Fed’s Open Market Committee left itself leeway in its December meeting to start buying again, saying it “will continue to evaluate the timing and overall amounts of its purchases of securities.”

Rising rates could hamper Mr. Martin and Ms. Munoz’s search for a buyer for their old house.

“It’s been on the market for almost three months,” she said. “We have had very few viewings.”

Mortgage Meltdown: Ignoring the Obvious=Avoiding the Solution

McCain’s Folly

The solution to the liquidity crisis continues to be a political agreement between government, business, borrowers and investors in which the obvious factors are directly addressed — overvaluation of home values, overvaluation of creditworthiness, and overvaluation of CMOs. Any plan which does not address those factors will merely be an attempt to sweep this one under a rug that isn’t big enough to hide the dust. All current plans are partial swings at a moving target, based upon the political points the author or speaker wishes to score rather than being based on the health, safety and welfare of the citizens of the United States of America.

 

The plain fact is that is the practically nobody in government anywhere knows, understands, or has developed any proficiency in developing an understanding of the economic world of their constituents. Upon cross-examination they would fold like a house of cards. 

Yet in an odd irony (redundant, I know) it is true that all economics is actually political and that all political decisions result in economic consequences. Hence we have put ourselves in the hands of a bunch of people, most of whom lack either the intelligence or the motivation to know what they are doing, and who are responding to the “information” given to them by their staff which gets most of its information from lobbyists, and the resulting legislation is passed without ANYONE ever reading it. 

Senator McCain is unfortunately one of the offenders for lack of actually reading the printed word. He reads nothing. He gets summaries orally on the run, and that is why he makes so many mistakes in his speeches. He spends no time in analysis or contemplation, not that he isn’t capable of it. He just doesn’t do it. And in our political world he has proven by getting the Republican nomination, that you don’t actually need actual policies in mind that serve as stepping stones to a better future — you just need votes, endorsements and money (not necessarily in that order).

In an effort to score political points, John McCain, presumably with the advice and counsel of prehistoric economic advisers, hawks the idiotic notion that government regulation is a bad thing in and of itself. Economists from all sides of the political spectrum admit that is wrong. Without a referee in the “free market place” we would all return to slavery or the dark ages of serfdom. We have recently gone too far in that direction, a fact which is obvious to about 80% of the American citizenry and even to young adults who ordinarily don’t even think of such things. The necessity of a referee (i.e., government) is completely unknown to McCain either in concept or reality. John McCain is decidedly not an idiot — but like most of his colleagues, he acts like one.

He said yesterday which much fanfare that it is not government’s job to bail out people, big or small. True enough — and it certainly plays well to those who blame the victims, as long as they are small victims rather than big companies whose stock is publicly held. 

According to the founding documents of this country, which are the Supreme Law of the land, it is government’s business to protect the health, safety and welfare of its citizens; and that means doing something to stop the current financial bleeding and slowing the American and worldwide tailspin that is destroying the paycheck of most American citizens increasingly each day, as the U.S. dollar reaches lower into the abyss and the price of gas now approaches 25% of the net paycheck of many workers. 

Bailout is one of the tools on the table and it is a good short-term and very small part of a total solution. The actual solution to the present crisis can only be reached through political consensus which thus far has not been the subject, much the less the focal point of discussions in the current emergency. To that end only Obama (and recently endorsed by Clinton) has proposed establishing an emergency commission not unlike the 911 Commission. 

A major bailout to everyone will only put the dollar, and thus the purchasing power of each citizen in further jeopardy. That is why Obama is right about limiting the resources applied to the bailout part of the equation. Stopping the foreclosures and evictions through political consensus is also a urgent requirement. Again Obama is right on the approach of consensus but probably wrong in his opposition to the 90 day freeze on foreclosures and evictions proposed by Clinton. 

We need some breathing space to show the world we are still in control here and that we understand the root problem — which is that prices became artificially inflated by high pressure sales tactics getting people to sign mortgage documents that could be sold to satisfy the last group of deals that were sold on terms that were impossible to sustain on their own. 

No bailout at all is government failing to do what it is there for — to referee between competing groups and interests and intervene when it gets out of hand.  

McCain is advocating (or more specifically parroting) the economics and the politics that got us into this mess. We had a Federal Reserve with no power to monitor or regulate the creation of money supply by the private sector. Paulson announced today he wants to change that and expand the Fed’s authority to acknowledge the obvious fact that investment banks have been creating more money supply than all the central banks put together. As a result, worldwide money supply from derivative security sales skyrocketed beyond the imaginable, with some estimates putting it at as much as $500 trillion.

 

That is why we keep saying here that the answer to the crisis lies in political consensus — as Obama preaches, and not in ideological fixed constructs like McCain and Clinton promote for political points. Paulson’s proposals will be helpful 30 years from now. Partisan solutions produce partisan fights resulting in gridlock. Americans need action now. Obama’s proposals should be looked at far more closely, and used as a point of discussion. We need help today, this minute.

 

%d bloggers like this: