$1.2 Trillion in Secret Additional Bailout for Banks with No Collateral and No Commitments « Livinglies's Weblog

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$1.2 Trillion in Secret Additional Bailout for Banks with No Collateral and No Commitments « Livinglies's Weblog

Of course the figure is much higher, but the secrecy surrounding the money given by the Fed to the banks is something to enrage any tea party advocate and for that matter any taxpayer. The Federal Reserve window was opened to banks who actually sold their mortgage bonds — worth nothing — to the Federal Reserve under the guise of a loan that would never be repaid. The program correctly explained in this video was one of many totaling more money than the principal on all the defaulted loans put together. The kicker is that the mortgage bonds they sold probably didn’t belong to them! (But they were acting as agents for investor/lenders whether they like to think of it that way or not.

Add to that the proceeds they received from insurance, credit default swaps, cross collateralization, overcollateralization and servicer payments (made to creditors with reports stating the loans were performing), and you have real boondoggle fueled by ideology instead of arithmetic. If the banks received more money than they loaned, then how are those loans in default? If your Aunt Tilly pays off your mortgage, your non-payment after she pays it off is not a default because there is no payment due! In this case it was Uncle Sam who paid it off and a bunch of third parties who were all making money, having sold the loans multiple times under the guise of exotic derivatives and synthetic derivatives.

SO the Banks made a ton of money in “off balance sheet” transactions which remain off balance sheet because they are hiding profits and not paying taxes. THEN they claimed losses because the money they made was “off balance sheet” and received a “bailout” they didn’t need equal to all the money that was loaned.

Free market capitalism is fantasy

Naked CapitalismI was reading this article at Naked Capitalism and checking out some of the comments and read a few that had me thinking we were a long way from ever having a free market or fair market system. 

Everyone seems to think a free market is all that is needed to created a robust economy.  However, there is no such thing as a free market.  What we have created is moving farther and farther away from being a free market system then ever. 

The corporations have teamed up with government to create a system that provides relief and resources to the largest corporations.  Politicians have gladly handed over the keys to the financial system and allowed policy to be shaped by the large corporate interest.  It is now a corporate run economy with government stamp of approval.  There is no way the average American citizen can freely participate in the economy without being at risk. 

Some people are suggestion complete government withdrawal from the economy and even cut off the issuance of bank deposit insurance.  It sounds like a logical move to a free market but the typical depositor will get crushed.  There is no way Americans to know what the banks are really doing with the deposits and clearly banks are always putting far too much money at risk in order to remain solvent in the aftermath of a crisis.  It seems clear enough that the banks have lost their credibility after this most recent crisis.  Evidently bank fraud and abuses are caused by government policy.  How absurd?  If this was the case then we would not have seen a crisis fueled by corporate fraud, criminality and greed. 

The interest of the individual citizen who drives the US economy has no one as its champion.  The politicians have caved to corporate bribes and pay offs (even if they are "legal" they still are bribes and payoffs).  The current generation has no one fighting for their opportunity.  The little guy is being squashed all while being brainwashed that Free Market Capitalism is the best way to level the playing field. 

We have been fed propaganda for years that America is the land of opportunity and that everyone has an equal shot at reaching the American Dream.  We are witnessing the pillaging of the public by corporate and government interest as they steal away what precious little opportunity was left for the individual. 

All of this is clear but the most troubling aspect of the entire current meltdown is just how blind people are to the reality of our economic system.  I have heard the phrase "zombie banks" for the current situation for many of the government propped institutions that are just empty shells but I am starting to think the majority of the population is sleep walking into the next era of economics for the country. 

We can not look to the Mainstream Media for guidance because they are bought and paid for by the banks and the government so people need to start thinking for themselves become free thinkers in order to see how badly our "free market system" has been vaporized by the bank/corporate tag team.








http://www.nakedcapitalism.com/2011/07/government-the-dominant-player-in-us-credit-markets.html









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A Mortgage Isn't a Life Sentence

This is the segment I did with someone who walked away from his mortgage, his home, and his $120,000 down payment after wrestling with the bank for months. It's powerful, and it's hopeful. "It feels great," Burton said without hesitation. "I'm starting again. I've still got my talent; I've got my intelligence. I've got my health. At least I'm free of the enormous amount of stress that I had and the frustration of doing the best I could and it wasn't good enough. It wasn't working. Ultimately, I made a decision that my physical and mental health was more valuable than this house and my investment in it." At this point in the housing crisis, if you're having problems, it's clear that no authority is coming to help you. Not bank regulators. Not Obama. Not the Republicans or Democrats in Congress. And especially not your bank. But the good news is there is hope. You have options. Ryan Grim, Lucia Graves, and Arthur Delaney interviewed 50 people thinking of walking away from their mortgages, and then interviewed them a year later. They wrote up what they found. For those who were able to walk away, it was a profoundly liberating experience. The hatred of the banks was searing, not because they owed money, but because the banks were often entirely unresponsive and dishonest. A mortgage isn't a life sentence, it's a contract. Your house is the collateral for that contract, and if you stop paying the bank gets the house. That's in the contract. There's nothing immoral about not paying your mortgage, you need to see your relationship with your bank as purely contractual. The bank certainly sees you as a number. If you're thinking of walking away from your home, you need to consider a couple of things. First, hire a lawyer who can give you good advice and negotiate on your behalf. There are legal traps to be aware of. For instance, depending on the state, if you stop paying your mortgage, your bank might be able to sue you for additional assets. This isn't common, but you should check out this list of states. Some are non-recourse, which means banks can take your house and stop there, while some are recourse, which means that banks can take your house, and sue you for assets for the difference between the loan amount and what the house fetches at auction. There's also your credit score. While it's true that your credit score will get hit for walking away, the formula for calculating it is secret. Some people report getting credit card solicitations within months of walking away.

 Read the full Article here A Mortgage Isn't a Life Sentence

Here is a related article from my blog several months ago.  It is nice to see someone else having the common sense to say the same thing. 

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Ron Paul Right On Regarding National Wealth

In the December 16, 2010 in the New York Times article "Ron Paul Appears Poised to Irk the Fed Chief"  Floyd Norris references last years writing by the Texas Congressman.
Ron Paul summed things up perfectly when he spoke of the need to abolish the fed. " If the Fed were abolished, he wrote last year, “the national wealth would no longer be hostage to the whims of a handful of appointed bureaucrats whose interests are equally divided between serving the banking cartel and serving the most powerful politicians in Washington.”
The Revolution: A Manifesto
This is why we can get no resolution with the housing crisis and the reason no one tried to stop Wall Street from over leveraging.  Everyone looked the other way because these politicians are owned by Wall Street.  It is extremely troubling to see how willing the government is to let the elite control the flow of money and the generation of wealth as long as they pay off the politicians.
End The Fed
I am not sure that eliminating the Fed would abolish the issues regarding inequality of national wealth but his explanation on the method of operation for the banks, Wall Street, and the politicians is right on the money. 

Read more on who is running the country here.  
Read more on the fearless banks here.

So those who have depleted savings on a mortgage for 3 years should suffer now because the government won't stand up to the banks?

Article from way back in 2008 addresses problems with foreclosures and defaults leading to downward spiral of housing prices. 

It is clear that many economists were aware of the problems with housing but there was only the uninformed leading the push to castigate anyone who was behind on a mortgage.  It was little but senseless dither by people who felt it was fair to give the banks billions of dollars for bringing the economy to its knees.  They were the same people waving the banner of trickle down recovery.  All the talk of how giving money to the banks would save the world just turned out to be complete fabrication in order to fleece the public. 

It seems like many people still think people should have endless amounts of money set aside for a rainy day, or in this case a rainy four years of unprecedented unemployment.  I am sick of hearing from people who say this was caused by irresponsible borrowers who bought homes they couldn't afford.  It is likely they could afford it if they were employed, or if banks were willing to work with people in distress.  The talk of foreclosing to turn the market around is just complete nonsense and any one who has any reasonable intelligence and understanding of real estate would understand the problem. 

We are in trouble because Wall Street and Banks wanted to be able to leverage the consistent payments of homeowners.  The interest wasn't enough for them so they wanted to create more liquid derivatives that would bring returns up to 10 fold.  We have not fixed the problem and when we do recovery they system will be in tact and it will happen again. 


"The recently enacted financial rescue plan does nothing to stop this spiral. Credit will not flow and liquidity will not return to the banking system until financial institutions have confidence in the solvency and liquidity of
of other banks. 
Problem is dowwnard spiral in housing prices



Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house. Residential mortgages are generally "no recourse" loans, meaning that if the homeowner stops making payments, the creditor can take the property but cannot take other assets or attach income. Individuals with loan-to-value ratios greater than 100% therefore have an incentive to default even if they can afford their monthly payments, and to rent an apartment or other house until house prices stop declining. When individuals default and creditors foreclose, the property is added to the stock of unsold homes. That depresses prices further, increasing the number and magnitude of negative equity houses.



The prospect of a downward spiral of house prices depresses the value of mortgage-backed securities and therefore the capital and liquidity of financial institutions. Experts say that an additional 10% to 15% decline in house prices is needed to get back to the prebubble level. That decline would double the number of homes with negative equity, raising the total to 40% of all homes with mortgages. The mortgages of five million homeowners would then exceed the value of their homes by 30% or more, which could prompt millions of defaults.



The process of default and foreclosure leading to price declines and further defaults could take house prices far below the long-term sustainable level. But even when prices seem low, prospective buyers will delay buying as long as they expect prices will continue to fall.
The financial rescue plan would bring back the confidence needed to revive the financial system only if the Treasury's asset purchases could eliminate the current impaired securities now held by the financial institutions, and if the remaining securities could be counted on to remain healthy. The legislation will do neither"