Friday, July 25, 2008

ARM Twisting

On June 5, 2008, the article Mortgage bankers report hits grim a benchmark in first quarter, showing a record number of homes in jeopardy appeared on the Yahoo! Real Estate pages. The article from discussed the milestone that in the first quarter of 2008, over a million American homes with adjustable-rate mortgages (ARMs) were in foreclosure.

Lest you think the problem in June was related solely to the subprime mortgage scandal (and it is scandalous) where people with shaky credit were sold ARMs they could never afford, it's interesting to note that the same article it is pointed out that
The report showed about 1.2 million prime mortgages are now a month or more past due, a seasonably adjusted rate of 3.7% of those loans. That's up from a rate of 2.6% a year ago.

So, six weeks ago, over a million homes secured with conventional, prime loans were at least one month behind. And, it's no wonder. Three family wood frame homes wrapped in vinyl siding in Sunset Park, Brooklyn, are selling for over $800,000. I wonder how many people with good credit, eligible for conventional mortgages, would choose to live in Sunset Park? Probably not many, so they will extend themselves to $1.5 million to get a grander home in adjacent Park Slope and live with their budgets on the brink.

It used to be that working-class Americans were the only people living a paycheck or two away from disaster, but the artificially-inflated real estate market is forcing upper-middle-class Americans in many cities into the same, or maybe slightly less dramatic, conditions.

Today, an AP business writer reports US foreclosure filings more than double in the second quarter of 2008.
Soft housing sales, declining home values, tighter lending standards and a sluggish U.S. economy have left strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan.

The problem with the above quote is that it fails to mention that the reason so many homes are in foreclosure is that the federal government (under the guises of Fannie Mae and Freddie Mac) have promoted the sale of ARMs and many Americans, not just those with bad credits, are unable to purchase a home with a conventional, federally-protected mortgage. It was the federally-funded conventional mortgage that built America. Young couples, small families, veterans, immigrants, and average Joes were able, for decades, to get a mortgage if they had a job and had saved a down-payment.

The Reagan and Clinton administrations decided that the American Dream of home ownership was not a worthy part of our civilization, and that it was more important to use federal funds to funnel money to private banks, the bankers who run them, and the shareholders of those private banks. So, Reagan's dream of socialism for the rich and free-enterprise for the poor began to take shape in the form of Fannie Mae and Freddie Mac policies that no real economist could ever condone. Profits have been privatized and losses have been socialized. If Fannie and Freddie make a profit, those profits are given to the shareholders, and if they lose money, those losses are absorbed by the taxpayers.

George HW Bush had referred to these notions as voodoo economics, and was silenced with the Vice-Presidency. Bill Clinton, whose administration couldn't find an anti-consumer bill it didn't adore, helped stabilize these polices as the norm. And today, we have a nation and a government so deeply in debt and so financially sick that only real, old-fashioned government regulation can save us.

Reagan and Clinton, however, convinced working Americans that regulation hurts them (which is a lie), and Barack Obama has the same position (as does Hillary Clinton, so there was no loss with her departure from the election).

So-called "conservatives" will tell you that our banks are faltering because the industry was not deregulated enough, that only further deregulation will save us. It has been an entire generation of this deregulation plan and deregulation of the financial industry has proven to be an unmitigated (and unmitigatable?) disaster.

Not one elected official has stood and said: "We need to finance and guarantee conventional mortgages for America's workers." Not one. Or, if one has said this, I have not heard it, yet.

We cannot look to the Democrats to help us. My senators are Hillary Clinton and Chuck Schumer, who are as pro-business as Barack Obama and George W Bush. Democratic leaders like Nancy Pelosi are interested only in increasing their own personal wealth, and the last bastion of liberalism, Ted Kennedy, is the man who started the entire deregulation movement in our government by working to deregulate the airlines during the Carter administration. So, the Democrats are unable to help us.

These leaves one obvious course of action: a failed economy. Think Zimbabwe with one million percent inflation, or Germany in 1929.

We are propping-up Fannie and Freddie, whose failures are inevitable, because you can't privatize profit and socialize loss; and once they fail, our nation's bond rating will slip below AAA, hyperinflation will cause the dollar to lose what's left of it's value, the petro-dollar will be replaced with the petro-euro, there will be a very tiny percent of wealthy Americans, and the rest of us will be at our local church soup kitchens with kids and elderly parents in tow.

Sounds dramatic, I know, but with Congress giving corporations everything they want (including the right to invade our privacy) and future-President McCain speaking directly about invading another oil-producing nation, what are the chances of our economy ever rebounding?

I do believe we will be better-off with a Democratic President and a Democratic Congress. Even if we are looking at the dismal prospects of Barack Obama, Nancy Pelosi, Chuck Schumer and Hillary Clinton, we will still be better off than more of the same being delivered by the Bush administration.

I would say to withdraw all your money form all financial institutions and hide the cash, but chances are things won't be as good as they were during the Great Depression, because that cash will be valueless.

If we do not work to remove the current politicians destroying our government, our nation will be left a mere shadow of its former greatness.

If you live in a voting area where a Republican can be replaced by a Democrat, then you owe it to your children, neighbors, and friends, to put a Democrat in office. If you have a chance to vote in a Democratic primary against the likes of Nancy Pelosi, Hillary Clinton, Chuck Schumer, Evan Bayh, Tom Carper, Bob Casey, Kent Conrad, Dianne Feinstein, Daniel Inouye, Amy Klobuchar, Mary Landrieu, Blanche Lincoln, Claire McCaskill, Barbara Mikulski, Bill Nelson, Ben Nelson, Mark Pryor, Ken Salazar, Jim Webb, or any other anti-progress Democrat, then you should vote for the opposition Democrat. We need to replace our currently seated elected government officials with some progressives.

How about we start by electing Al Franken, in Minnesota. After all, if our government is going to be a joke, perhaps it is only comedians who can save us.

Think progress, not profits. If we rebuild a strong nation with a strong government, there will be plenty for everyone. Perhaps a restored government can provide something better than ARMs for the poor.

Dick Mac Recommends:

Ethics for the New Millennium
Dalai Lama

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