To some audiences McCain has claimed to have made an effort to strengthen the regualtion of the financial industry. This is disingenuous, as he and his party are four square behind removing constraints on the financial community and the business world in general. I have discussed his meager gestures toward regulating business. His overwhelming record in favor of deregulation is much discussed elsewhere. It is hard to imagine a record more clearly favoring abolishing regulatory constraints. Here is a video compilation of a few recent deregulation statements by McCain and speakers at the Republican convention.
CBS says that Obama won, although the polls do not seem to show a bump after the debate. This may be because there were so many things happening last week, including last week’s declaration by McCain of “Mission Accomplished” with respect to the bailout. It was only this week that this was shown to be as illusory as previously accomplished missions.
McCain’s seizing the headlines last week and his efforts to portray himself as leader of the congressional bailout coalition no doubt caused expectations for his performance in the debate to rise, particularly when foreign policy, his acknowledged strength, was the focus of the debate. Higher expectations may have contributed to the perception that he lost the debate.
I got the impression that he was betting the house when he “suspended” his campaign to demonstrate his leadership ability with the bailout legislation. He of course did not suspend anything except his own public appearances and arguably the television time he got for this gesture exceeded anything that he would have received had he continued to make scheduled public appearances. Once again though he took a short term gain — the appearance of leadership in crisis — and risked a long term loss. Once again, as with the vice presidential decision, it looks like the long term loss will outweigh the immediate gains. For all the broohaha last week, this week McCain looks ineffective. His white horse seems to have charged in the wrong direction.
The vice presidential debate could given the recent downward direction of the polls momentum. I shudder to think what episode awaits us to curb that event if it occurs.
Here’s an interesting bit of information from the New York Times. Democrats who voted for the bailout received appreciably more money form Wall Street than the Democrats who voted against it.
This once again brings to mind that the political division is not between Republicans and Democrats but between politicians serving corporations and those who are unaffiliated in that sense.
I do not understand the situation enough to be for or against the bailout but it is noteworthy that in this time of crisis there is a correlation between votes and campaign contributions.
I’m still struggling with understanding how at-risk home mortgages which total — according to everyone I know of — $112 billion can require $700 billion to remedy and the remedy as far as I can understand has nothing to do with making good on the mortgages that are supposedly the root of the problem.
McCain once again has hoisted himself by his own petard. McCain’s effort to reverse the downward trend in the polls last week seems to have backfired. His highly publicized return to Washington risked hindering those negotiations by turning them into a political spectacle.
He seemed to minimize the risk of derailing the negotiations by not taking an active part in them. Instead he seems to have limited his participation to contacting members of congress to encourage them to pass the bailout bill, focusing on the doubting Republicans in the House. His efforts got him into the news and stopped the chatter about his deregulation policies creating the crisis.
At the end of the week, when people believed that the bailout bill would pass, he was taking credit for solving the problem. With the bill’s spectacular failure, McCain finds himself in a worse situation than the one last week. Instead of diverting discussion from how we got into this difficulty and receiving accolades for averting disaster, he finds himself ducking the ricochets of his own salvos.
The man who claims to embody the best leadership qualities could not lead his own party in a time of crisis. The intense degree of attention McCain called to this matter puts the failure of his efforts in sharpest relief. Increasingly his judgment appears to be somewhat superficial and geared to public realtions rather than substance.
The polls indicate that McCain is suffering the most erosion of support among older voters. These people are generally regarded as a more knowledgeable group of voters. My guess is that McCain’s predilection toward snap judgments, and willingness to take serious risks are causes of diminishing support from this quarter. His record shows him voting almost entirely for deregulation and he has boasted about it consistently until very recently. There is nothing in his recent activity to show insight and judgment sufficient to separate him from his record.
I’m having trouble understanding this bailout business and I cannot find an explanation anywhere. Apparently a lot of other people are having trouble understanding this as well. My confusion relates to the claim that the problem is due to the foreclosure crisis and that at least $700 billion dollars is needed to fix it.
The total amount of troubled home loans is $112 billion. This at least was the number bandied around over the last year. It was that portion of Washington Mutual’s portfolio that brought it down. The Wall Street Journal this morning reports that Washington Mutual has $30 billion in bad loans that will be written down with the purchase. What are these loans? Are they not home loans?
From published reports just paying off the home loans would have rendered Washington Mutual highly solvent. If the government stepped in and paid them all off, what would we use the remaining $588 billion for?
Furthermore that does not take into account the collateral for the loans. If we were able to recover just one quarter of the amount for which the collateral had been orginally valued, that would reduce the cost by an absolute minimum of $28 billion, leaving a cost to the tax payers of $84 billion. It is likely that more would be recovered so that the actual cost would be around $50 billion.
Either the total amount of troubled home loans is more than six times greater than previously reported or there is a lot going on that I have not been able to find explained.
Did you know that Washington Mutual began just after the Great Seattle Fire in 1889? Here is a thumbnail sketch of its history. It has been around over a century and it appears that now its days are numbered.
Washington Mutual appears to have gone the way of Seafirst Bank in the 1980’s. Seafirst was at the time the biggest, baddest bank in the region and its board of directors hankered for more. At that time national banks were getting fat on third world loans and energy loans. Remember that an asset for a bank is a performing loan.
So you make a loan and you have an asset until a few payments are missed, then it flips to the other side of the balance sheet. This makes banks which loan heavily in one sector quite vulnerable to slumps in that sector of the economy. If the sector slows down things can turn around fast for the bank.
Banks hedge their bets by selling portions of their loans to other banks, called “participations.” The problem is that this seems to encourage banks to dive much deeper into a given area, so that the advantage of selling off portions of the loan are lost by the sheer magnitude of the lending. Penn Square Bank, a little shopping center bank in Oklahoma City, started making oil loans by the billions and selling off participations to banks around the country. Seafirst invested hundreds of millions of dollars in these participations, as well as serving as the primary bank in many of the loans and became a big player as rapidly as Washington Mutual.
But the bubble burst and Penn Square Bank folded, sending the biggest banks in the country into insolvency. Seafirst, already strapped with nonperforming third world loans was purchased by BankAmerica.
Ten or fifteen years later Washington Mutual decided to become a big player by riding the home lending boom. It succeeded and grew exponentially. With the bursting of that bubble, it too has I think reached the end of its days. It has probably not been bought out because of concerns about the market — home loans — into which it plunged. Financial institutions are not sure that the bottom has been reached and are reluctant to jump in even at fire sale prices.
There are only two major investment banks left standing and there are serious questions as to whether either one can survive. With Barklay’s, a foreign bank, buying Lehman it appears that the pool of potential domestic buyers is reduced if not depleted. It is at least questionable whether the federal government can afford to prop up Washington Mutual, but the country could ill afford to have a bank of its size fail.
Colossal mismanagement has put us in a situation where we are steeped in debt and watching our financial assets, so far only historic investment houses, taken over by foreign interests.
The United States does not have enough money to sustain its own activities. For reasons that I did not understand, nor apparently Alan Greenspan, rather than curb our country’s excesses we went into historic levels of indebtedness. Our foreign debt has more than quadrupled and our total national debt is over three trillion dollars.
This previously unknown level of debt quite predictably caused the dollar to weaken. As the dollar fell we have made a variety of efforts to prop it up but the weight of our debt has been too much for the interim measures we have undertaken.
While our leaders were focused on a war we entered into for reasons that have never been adequately explained by our leaders, they did not mind the store at home so that reckless lending practices were allowed to metastasize. This certainly artificially sustained the economy for a while and just as certainly these practices were unsustainable over the long haul. They were doomed to fail with fluctuations in the real estate market and like all houses of cards a tremor would be ruinous.
For reasons the Bush administration can best explain we were caught unprepared. We have been forced to take measures that will be hard for our economy to endure if they are successful in stemming the current disaster. At a time when we are borrowing money almost as fast as we can, the government is committing its resources to propping up its financial and insurance institutions. This diversion of funds that are already inadequate to meet expenses will add to our sorry state of indebtedness.
The second measure that we are taking is to print more money. Yesterday the Federal Reserve announced that it will be dumping $56 billion into the economy. When you print the stuff that is pretty easy to do. This however will contribute to the downward spiral of the value of the dollar.
I have commented, after reading Naomi Klein’s “Shock Doctrine,” that the United States really has been taking on the attributes of many South American countries. It has a diminishing middle class; the polarization of wealth distribution is greater than it has been since the beginning of the industrial age, before the first timid implementation of the restraints complained of by Republicans.
Like our neighbors to the south we have promoted the power of the executive to a greatly heightened level. We have reduced oversight of private financial activity while loosening restraint on governmental activity with respect to its citizens. Like South American countries we have gone deeply in debt and our financial institutions are not stable. Similar to them our currency is falling.
The current measures to cure the crisis are not the smoke and mirrors approach that we have adopted in the past. At the same time if they avert disaster they will leave us with an economy in worst condition than we thought it was in before the crisis. In short we will bring the crisis in the wings that we already knew about a few steps closer to center stage.
A “short sale” in Washington State real estate agent parlance is selling during the pendency of a foreclosure. It involves convincing the foreclosing lender to accept less than the full amount owed.
One of the things to watch out for here is a fairly subtle manipulation by the real estate agent to profit by the situation. The case I’m familiar with involved a home owned by a very unsophisticated woman. The real estate agent disclosed that a relation was the buyer and that the sale was “a short sale.” The owner did not understand what this meant and signed the papers offered to her, again relying on her agent and not understanding the terminology of the contract.
She was next told to come down to sign the papers for closing and that there would be no money for her. When she objected, the agent gave her verbal promises that she would receive three thousand dollars after closing but declined to put it in writing.
It turns out that she would have received over ten thousand dollars except that the addenda to the contract provided that she would pay all the buyers’ costs of the loan and settlement charges. It also provided that almost $6000 would go to the Nehemiah Down Payment Assistance Program, which according to the closing agent is a program to refund the buyer’s down payment.
This lady had no understanding that, while she got the price she wanted, over ten thousand dollars of the money was going directly for the buyer’s benefit.
In this way the buyer gets the home for absolutely no money out of pocket and the owner gets nothing. The real estate agent gets the commission. The buyer though is left in the same position as if there had been a foreclosure, except that her credit report will contain reference to a “short sale” rather than foreclosure. What the seller has lost is time that might have been spent trying to make a sale that would give the buyer some money to at least move.
Seattle this spring adopted a small loan program to help foreclosure victims. The program was so narrowly defined that it could not help most of the people needing assistance, but represented a step in the right direction. The principal recommending feature of the program was that the money advanced to homeowners was treated as a secured loan, so the cost of the program would be quite limited.
San Diego’s City Attorney proposes another inexpensive approach that warrants study. He is pushing the City Council to pass a moratorium on foreclosures. Cities and local governments could certainly do this. There might be an argument that the legislature had not conferred this power on local governments, but this at the very least is debatable. The possibility of a challenge alone is no reason to avoid doing something that is helpful to people.
With the number of foreclosures still rising, and the peak not expected until fall, more and more people will be confronted with the decision whether to sell before the foreclosure date. Before deciding to sell the homeowner should be satisfied that selling is the best alternative.
Due diligence in this regard should include talking with a bankruptcy lawyer, consulting with a knowledgeable mortgage broker or other qualified consultant about the possibility of refinancing, negotiating with the foreclosing lender, contacting local governmental agencies to see about assistance programs, consulting with a foreclosure expert to see what price the property is likely to get if it were sold in foreclsoure and to understand the process, and speaking with a real estate agent with experience in foreclosures about the market. I can’t over emphasize the importance of talking to people with expertise in foreclosures, as they are likely to be far more helpful than people with general experience.
Once it is determined that sale is the best option, the laws of the state should be ascertained. Some states, such as Washington, have distressed property laws that are intended to assure that a home owner in this situation makes an informed decision before parting with title.
These laws generally speaking reduce the interest of investors in buying distressed property, creating great opportunity for investors who are willing to comply with the law. The laws also dramatically reduce the number of “rescuers” who hound homeowners in financial crisis and often prove to bring only financial disaster to a home owner.
I recommend that you list the property with a real estate agent with knowledge and experience in the area. If you try to sell without an agent, give yourself a deadline, then list it if the property has not sold. An agent will give the property much more marketing exposure than the typical non-agent sale and the expertise in this situation is usually helpful.
In marketing the property, emphasis should be placed on assuring the prosepctive buyer that you have done your homework and that the buyer need not fear running afoul of the depressed property laws of the state. A lawyer can help with this.
There should be a backup plan. Often people plan to file bankruptcy if the property is not sold by a specified date. It is a good idea to have already consulted with a bankruptcy lawyer and have the papers ready to file before that date.