A recent article in my local paper (LI Business still awaits feds’ mortgage aid - Newsday) contains the seeds of repeating the entire mortgage fiasco. A complaint from the owner of a mortgage company is that “bank lending is the way it was 20 years ago.” He means that potential borrowers now actually have to a down payment, prove their income and have a good credit history. He is correct; that is exactly how it was twenty years. That was when there was no financial issue with mortgage lending. In the interim, Freddie Mac, Fannie Mae and Congressional leadership changed the standards so that everyone could own their own home. They encouraged mortgage brokers such as these to make loans to anyone who could fog a mirror with the result that we are where we are. This guy apparently wants to do the same thing all over again. He gets a few points per loan and everyone else pays for it. Another guy, a “senior loan consultant”, complains that the required credit scores have been raised. Good. If loans had been made to credit worthy people in the first place none of this would have happened.
This one-sided tripe is an insult to your readers. Everyone who was interviewed has a vested interest in lending to any credit risk that knocks at their door. These guys are either stupid or greedy. Business articles should have some level of balance.
Sunday, March 29, 2009
Monday, March 23, 2009
Brave?
President Obama has announced his opposition to a recent law that was rushed through Congress. The law is retroactive and narrowly written to target taxing the income of specific people. The law is clearly unconstitutional. The media has come to the position that the President’s stand is brave and courageous. Incredibly, the same media castigated the members of Congress voted against the law in the first place.
The situation is that two groups of people reached the same conclusion. The media says that President Obama is brave while the Republicans who voted against at the peak of public furor were obstructionists. The position that the mainstream media takes is apparently based upon who says what. It is small wonder that newspapers lose circulation and the nightly news shows lose viewers.
The situation is that two groups of people reached the same conclusion. The media says that President Obama is brave while the Republicans who voted against at the peak of public furor were obstructionists. The position that the mainstream media takes is apparently based upon who says what. It is small wonder that newspapers lose circulation and the nightly news shows lose viewers.
Saturday, March 21, 2009
Congressional Follies
The AIG hearings have once again demonstrated the total intellectual poverty of our elected representatives. Once again, they get some face time to move the spotlight from their own ineptitude. They rant about millions in order to get their billions in earmarks under the radar. The same happened with the Auto execs private airplane rants while Congress (Pelosi et al) take private jets on fact finding junkets to Italy.
Meanwhile, Senator Dodd puts special bonus enabling legislation in the TARP bill as a favor to a Secretary of the Treasury who can’t pay his taxes. Everyone denies everything for a while until they have to admit it. So, Congress “solves” the problem by passing a retro-active (unconstitutional) law. Then they pass a bonus limit that insures that the most able CEOs will not want to work where they are most needed. The best turnaround specialist CEO in the world can make more money elsewhere. Brilliant!
Meanwhile, Senator Dodd puts special bonus enabling legislation in the TARP bill as a favor to a Secretary of the Treasury who can’t pay his taxes. Everyone denies everything for a while until they have to admit it. So, Congress “solves” the problem by passing a retro-active (unconstitutional) law. Then they pass a bonus limit that insures that the most able CEOs will not want to work where they are most needed. The best turnaround specialist CEO in the world can make more money elsewhere. Brilliant!
AIG
The best thing that has happened to Congress recently is the ineptitude of the AIG bonus story. This story has removed the Congressional earmark issue from the public view. The earmarks misappropriated billions (B) of dollars to various pet projects which are generally of no use to the public at large. The AIG bonus issue is counted in the millions (M). This money was still misappropriated and still of no use to the public but the Congressional boondoggles were many orders of magnitude worse. So now our Congress gets to grandstand at another CEO for doing exactly what our Congress does. Meanwhile, President Obama also expressed outrage. He does not mention that his Secretary of the Treasury has been the architect of these bailouts since the beginning. The beginning is from the Bush Administration where he designed all of this without any oversight.
This is the Secretary that we had to have even though he couldn’t figure out the need to pay his taxes - that was just an oversight; this is the same man who approved these bonuses in the first place – another oversight; the same man who was supposed to have a comprehensive plan completed last month – it is now on schedule for maybe next month. A true comedy of errors. To keep up the comedy, President Obama goes on Leno and makes a joke about the handicapped – another oversight. What this whole gang does not have but needs desperately is oversight
This is the Secretary that we had to have even though he couldn’t figure out the need to pay his taxes - that was just an oversight; this is the same man who approved these bonuses in the first place – another oversight; the same man who was supposed to have a comprehensive plan completed last month – it is now on schedule for maybe next month. A true comedy of errors. To keep up the comedy, President Obama goes on Leno and makes a joke about the handicapped – another oversight. What this whole gang does not have but needs desperately is oversight
Thursday, March 12, 2009
The End of Days
The job market is tight for everyone. The recent news article about nervous students was good for a laugh but shows where we are. The article was several interviews with soon-to-be graduates and some helpful hints about interviews. The hints included telling people who want to be professionals of some sort that that sweatshirts/ jeans are inappropriate for interviews and that their cell phones should be hidden (hidden! - how about turning them off?).
People who need such advice should be given a paper hat and name tag at graduation. Something they can use.
People who need such advice should be given a paper hat and name tag at graduation. Something they can use.
Earmarks
The earmarks issue has been around for years and paid any attention. The line item veto has been talked about for years with no action from either party. We now have a President who believes that earmarks are “an old way of doing business”. He even signed the current bill – with its thousand of earmarks – in private. His characterization of the imperfect bill is correct but he signed it anyway. There was no imminent deadline. It could have been sent back to Congress all of the pork removed and resubmitted without the government coming to a stop.
He proposes to have rules for earmarks – in the next bailout bill – which are laughable. In the future, every earmark will have a “legitimate and worthy public purpose”. That is not a rule; that is rhetoric. It just means that he has a vague sense that the current earmarks do not meet this criterion but he isn’t going to do anything about it. Unfortunately, the future earmarks will be reviewed under existing standard of “you approve mine and I’ll approve yours”. Everyone gets to say that the standard is met and the circle continues.
The related comments by Steve Israel and the Democratic leaders further eliminate the possibility of any real commitment to change. Representative Israel announced that he will no longer seek earmarks to for profit companies; Representative Pelosi announces that earmarks to for profit companies have to be competitively bid. So, the for profit company who contributed to their election campaign still gets the help (just from the low bidder) and John Kerry still sponsors the Edward M. Kennedy Institute for the Senate – but that doesn’t have to go through the nasty bidding process. The chances of Senator Kerry eventually working at this Institute are excellent.
Even the proposal to have the earmarks published on the sponsor’s website means that earmarks would be scattered over hundreds of government websites. Publishing a consolidated list of all earmarks and who sponsored them was not considered. That would be way too much information for the public to have.
The simple solution is that there should be no earmarks. The only reason they exist is to allow professional politicians to further their own agenda. They are either payback for past and future campaign contributions or providing places for them hide when they are voted out (see the Edward M. Kennedy Institute for the Senate).
He proposes to have rules for earmarks – in the next bailout bill – which are laughable. In the future, every earmark will have a “legitimate and worthy public purpose”. That is not a rule; that is rhetoric. It just means that he has a vague sense that the current earmarks do not meet this criterion but he isn’t going to do anything about it. Unfortunately, the future earmarks will be reviewed under existing standard of “you approve mine and I’ll approve yours”. Everyone gets to say that the standard is met and the circle continues.
The related comments by Steve Israel and the Democratic leaders further eliminate the possibility of any real commitment to change. Representative Israel announced that he will no longer seek earmarks to for profit companies; Representative Pelosi announces that earmarks to for profit companies have to be competitively bid. So, the for profit company who contributed to their election campaign still gets the help (just from the low bidder) and John Kerry still sponsors the Edward M. Kennedy Institute for the Senate – but that doesn’t have to go through the nasty bidding process. The chances of Senator Kerry eventually working at this Institute are excellent.
Even the proposal to have the earmarks published on the sponsor’s website means that earmarks would be scattered over hundreds of government websites. Publishing a consolidated list of all earmarks and who sponsored them was not considered. That would be way too much information for the public to have.
The simple solution is that there should be no earmarks. The only reason they exist is to allow professional politicians to further their own agenda. They are either payback for past and future campaign contributions or providing places for them hide when they are voted out (see the Edward M. Kennedy Institute for the Senate).
Friday, March 6, 2009
Another mistake
There are things in the mortgage bill that are clearly indefensible.
Many of the mortgages involved were made with a very small or no down payment. Because of this even a small downturn would have put them underwater. So what? Everyone house is worth less than it was 2 years ago. This plan rewards the people who did not save for a down payment and does nothing for the people who saved and bought within their means. Further, the current value of the house has nothing to do with the mortgage payment. The people living in the house either continue to live there or pay rent someplace else; the current value no bearing on anything. Also, the plan does not include any mention of what happens when the value of the house appreciates. Does the borrower get to refinance and take more cash out? It puts the government (taxpayers) in the position of supporting bad investments and punishing good ones.
Many of the mortgages were refinances. The property owner mortgaged the equity, increased their payments and received (cash) in return for a larger monthly payment. The plan includes these mortgages but there is no attempt to determine where the cash went or if there is any left.
The plan provides these “qualified” borrowers $1,000 a year for 5 years for making payments on time. Because the overwhelming majority of people bought homes they could afford and saved for a down payment to keep the payments with the proper range, their payments are on time. The plan rewards the people who got themselves into difficulty is because the payment. Again, the wrong behavior is given incentives.
The plan proposed that people whose payments exceed 55% of their pre-tax monthly income get counseling. Again, bad behavior is rewarded. If the payment is 55% of pretax income, that means, even with a low tax rate of 20%, almost 70% of the borrower’s income was going to a mortgage payment. That is the point at which government thinks the borrower help. So people are in houses they had no chance of paying for (or even eating regularly) and the government supports their wanton behavior. Again, people who live within their means get to pay for it.
The next assault on sanity is to give Bankruptcy court judges the power to unilaterally alter the mortgage terms. This incredible proposal means that a judge can lower the amount owed and the interest rate to whatever fits the borrower capability – voiding the lending contract. That means the bank loses money – and who pays for that - and future contracts are no longer secure. The point is to encourage lending. But this would accomplish the opposite. Lending takes place because the lender believes that the borrower will honor the terms of the loan. This creates a situation where a third party can void an otherwise valid loan contract. That certainly does not encourage a lender to lend any money to any one. Further, since the risk is increased, the interest rate will go up. Another foolish proposal that is consistent with the absurdity of the entire Making Homes Affordable program.
Many of the mortgages involved were made with a very small or no down payment. Because of this even a small downturn would have put them underwater. So what? Everyone house is worth less than it was 2 years ago. This plan rewards the people who did not save for a down payment and does nothing for the people who saved and bought within their means. Further, the current value of the house has nothing to do with the mortgage payment. The people living in the house either continue to live there or pay rent someplace else; the current value no bearing on anything. Also, the plan does not include any mention of what happens when the value of the house appreciates. Does the borrower get to refinance and take more cash out? It puts the government (taxpayers) in the position of supporting bad investments and punishing good ones.
Many of the mortgages were refinances. The property owner mortgaged the equity, increased their payments and received (cash) in return for a larger monthly payment. The plan includes these mortgages but there is no attempt to determine where the cash went or if there is any left.
The plan provides these “qualified” borrowers $1,000 a year for 5 years for making payments on time. Because the overwhelming majority of people bought homes they could afford and saved for a down payment to keep the payments with the proper range, their payments are on time. The plan rewards the people who got themselves into difficulty is because the payment. Again, the wrong behavior is given incentives.
The plan proposed that people whose payments exceed 55% of their pre-tax monthly income get counseling. Again, bad behavior is rewarded. If the payment is 55% of pretax income, that means, even with a low tax rate of 20%, almost 70% of the borrower’s income was going to a mortgage payment. That is the point at which government thinks the borrower help. So people are in houses they had no chance of paying for (or even eating regularly) and the government supports their wanton behavior. Again, people who live within their means get to pay for it.
The next assault on sanity is to give Bankruptcy court judges the power to unilaterally alter the mortgage terms. This incredible proposal means that a judge can lower the amount owed and the interest rate to whatever fits the borrower capability – voiding the lending contract. That means the bank loses money – and who pays for that - and future contracts are no longer secure. The point is to encourage lending. But this would accomplish the opposite. Lending takes place because the lender believes that the borrower will honor the terms of the loan. This creates a situation where a third party can void an otherwise valid loan contract. That certainly does not encourage a lender to lend any money to any one. Further, since the risk is increased, the interest rate will go up. Another foolish proposal that is consistent with the absurdity of the entire Making Homes Affordable program.
Thursday, March 5, 2009
Early Accomplishments
In just over 5 weeks President Obama has:
Promised money to oil producing countries to bolster the image of the US to Muslims
Insured that the most capable CEOs will not work at troubled banks
Provided mortgage support to people who took cash out refinances and can’t account for the money
Appointed a union leader to run the Auto Czar committee
Appointed the CEO of a failed bank specializing in sub prime mortgages to his economic advisory committee
Shown that he knows almost no one who pays actually taxes
Released a guy from Guantanamo who went directly to work for the terrorists in Syria
Destroyed any progress made on welfare reform in the last 20 years.
Continues to try to scare everyone about the economy
Still has not released any background information on himself
Refused to stop the absurd earmark spending
Given money to people who don’t pay taxes,
Given money to people who chose have children but don’t make enough to support them
Spent more money faster than anyone ever has
Promised money to oil producing countries to bolster the image of the US to Muslims
Insured that the most capable CEOs will not work at troubled banks
Provided mortgage support to people who took cash out refinances and can’t account for the money
Appointed a union leader to run the Auto Czar committee
Appointed the CEO of a failed bank specializing in sub prime mortgages to his economic advisory committee
Shown that he knows almost no one who pays actually taxes
Released a guy from Guantanamo who went directly to work for the terrorists in Syria
Destroyed any progress made on welfare reform in the last 20 years.
Continues to try to scare everyone about the economy
Still has not released any background information on himself
Refused to stop the absurd earmark spending
Given money to people who don’t pay taxes,
Given money to people who chose have children but don’t make enough to support them
Spent more money faster than anyone ever has
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