Random Thoughts on Financial Crisis

• Goldman Sachs and Morgan Stanley are no longer investment banks? Breath-taking. This move is clearly a matter of perception, since neither bank was doing poorly. As far as I'm concerned, this so-called crisis has already reached it's bottom when Fannie Mae, Freddie Mac, and AIG were saved by King Paulson. There may be smaller bank failures, but the worst is over in my opinion.
• The current reaction in the market is about one year too late.
• When people talk about an AIG failure affecting the real economy, I have to laugh, laugh, laugh. Give me a break -- the experts need to come on down to and talk to people here in Florida. They will discover that unemployment is up, trucks are sitting idle, foreclosed homes are rotting away.
• Speaking of foreclosed homes, I have been trying to close on a house since June ... the excuse is that banks are so swamped with foreclosures, that they can't keep up and process closing in a timely manner. I also think banks have been unwilling to put in the time and money necessary to hire and properly train staff to handle the increased volume in foreclosures.
• The 700 billion dollar bailout deal currently being debated in Washington, D.C. -- you mean to tell me that individual banks would rather wait for the government, rather than work with individual borrowers? I have spoken to many folks down here who said they would have been willing to pay a portion of their mortgage payment to hold onto their house, rather than lose it to foreclosure. You mean to tell me that the banks would rather get pennies on the dollar from the government (with tax dollars), rather than individual borrowers? Something tells me banks have GAMBLED that they will get a better deal from the Feds! This is obscene, and SHOULD be criminal.
• I think you will see civil lawsuits, perhaps filed by states hit hard by this CRISIS, against all the banks involved.
• Glenn Beck had a funny bit yesterday -- they were talking about the CRISIS and how people need to stop getting into debt, pay themselves first every month ... then they took a fake caller who said, basically, "Yeah, my wife's got triplets on the way, I just bought a boat, I need to get a trailer for the boat, and I was wondering if I should take the no-annual fee deal the credit card company is offering to finance that?" They asked him what his current income was, and the caller said, "Oh, I'm unemployed ... I just use those courtesy checks from the credit card company to get by. So, what do you think I should do?"

Housing Mortgage Bill -- Vahl Comments

First, here are excerpts from an article that describes the Housing Mortgage Bill that will likely be signed by the President before the end of the year:

Boosting Fannie and Freddie
To help stabilize markets, which were shaken in the past few weeks by steep declines in the stock prices of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Treasury Secretary Paulson asked Congress on July 13 to give the Treasury power to provide a liquidity and capital "backstop" for the two companies.

Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.

The bill allows Treasury over the next 18 months to offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies if necessary.

Shares of Fannie closed 12% higher and those of Freddie 9% on Wednesday. Fannie's stock is down 79% and Freddie's 84% over the past year.


Helping at-risk borrowers
The bill also aims to help homeowners at risk of foreclosure and to bolster regulation of Fannie and Freddie. Among other things, it would:

Increase the Federal Housing Administration's role. The FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if lenders agree to write down loan balances to 90% of the homes' current appraised value.

Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home's appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance. They must also agree to share with the government any profit they realize from selling or refinancing.


Create home-buyer credit. The bill includes a tax refund for first-time home buyers worth up to 10% of a home's purchase price but no more than $7,500.

The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments. It would be reduced gradually for single filers with adjusted gross incomes above $75,000 and for joint filers with AGIs over $150,000.


Bar down-payment assistance for FHA loans. The bill eliminates a program that has allowed sellers to provide down payment assistance. The seller-funded program is largely the reason why the agency's reserve has fallen by $4.6 billion, according to FHA Commissioner Brian Montgomery. Currently, that reserve is roughly $16.4 billion.

The bill would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.


Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties.

Quick comments by Vahl:

I personally approve of this bill. It's close enough to my Earth-Never solution to the Housing crisis. The only thing that bothers me is the removal of the seller assistance for down payments. I understand why it has to be this way ... it just potentially delays my first home purchase. Since the home I'm looking at is EXTREMELY cheap, I know I'm not a bad borrower if I get down-payment assistance. This is what happens when government is forced to step in to solve a problem -- the whole populace is punished because of a few bad apples.

Don't believe me? Have you flown anywhere lately?

Anyway, I accept this reality.

Winners: People currently in danger of losing their home to foreclosure.

Losers: People who've ALREADY lost their homes to foreclosure.

LME Practitioners rewarded: The banks, some very lucky thoughtless borrowers.

I pray that Repubs and Dems who support off-shore drilling will filibuster this bill in the Senate until their voice his heard and their bill(s) are brought up for a vote.