Embracing "Insanity" in this Crisis
Recently, Tom Peters wrote regarding the financial crisis, "I, for one, cannot conjure up any 'sane' fixes to deal with this insane situation." Perhaps a very good "insane" solution may be not to buy these bad assets on bank books that CEOs created and boards sanctioned in order to collect fat fees for shuffling Collateralized Debt Obligations (CDOs) that had no value. Bond insurers also got in on the deal, writing policies against these bogus instruments, collecting fat fees too for creating value that did not exist.
If banks want to clean their balance sheets, why not do the insane thing and adjust mortgage rates without fees to allow homeowners to stay in homes? Would this not decrease homes that will go into foreclosure over the next few years, creating more bad assets for banks? Why not also do the insane thing and sell off these bad assets at the current market value or below and start again? Maybe banks should take a loss this time. After all, how much did they gain in the scheme?
My partner and I have created value by going directly to the banks, buying these assets with cash, and putting people back into homes. (Some banks are opposed to directly buying from them, perhaps because they don't know the value of the assests and don't want to lose, although they're losing big already. Middlemen also want to continue collecting fees.) On a relatively small level it has worked wonderfully and we have created jobs and rescued neighborhoods from potential blight. (Our homes are mostly in middleclass suburban neighborhoods. We know others doing the same in other communities with success too.) If banks do not want to clean their balance sheets through creative means that actually create real value in the US economy, maybe we should let them fail.
The value that banks created has been for themselves to the detriment of others. Do not think for one second that these guys did not know what they were doing. They most certainly did. They now seem to be waiting for the government to step in and buy these bad assets that they themselves created.
It used to be so that banks did not like such assets and they were not in the housing business. I guess greed placed them squarely in the housing market. Now, they appear to be sitting on these homes in hopes of a return on an incredibly bad investment. The value of homes can then take on the present market value, returning to more of what the homes are actually worth. The investment vehicles created by banks and sanctioned by credit agencies have no real value anyway. Maybe we have to rebuild value.
Banks created the perfect storm through engaging the credit agencies and bond insurers, who were all too happy to collect fat fees also; gullible homeowners got into bad mortgages even when credit worthy and greedy ones used their homes as bank machines to take trips here and there and buy boats and other toys. (Some also sent their kids to college or built up their businesses.) This way there was plenty blame to go around.
Maybe we should ask where the problem began. It seems like the problem began with these large investment banks in cahoots with credit agencies and bond insurers. Perhaps we should let these banks fail that produced no real value in comparison to the disaster created and allow the market to re-create value for these homes. Perhaps a great many people who created these bogus investment instruments and CEOs and board members who went along with them should be prosecuted and sent to jail.
Warning: This post is written by a non-economist, non-banker, two-bit entrepreneur. But perhaps this insane idea, may, in fact, be sane. What do you think?
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RESTORE CONFIDENCE AND REDUCE AMERICA’S ANGER TOWARD BIG WALL STREET BANKS
1. Investigate Housing Hyper-Inflation Ponzi Scheme and prosecute offending Executives
2. Banking Executives and Managers return money lotted from their Banks
3. No further Bailouts of Eight Big Wall Street Banks - Follow Bankruptcy Process and include "Off-Balance-Sheet" Toxic "Fake AAA Rated" Paper
4. Limit Pay for all Executives and Managers to $1 million (last year top paid 400 Wall Street Elite received $236 Million with one making $3.7 Billion)
5. Thoughtfully remove and replace top 100 people from any surviving Big Banks
6. Regulate all New Financial Products and Hedge Funds. Tax Hedge Fund Managers as Normal Income and place FEE CAPS.
7. Downsize any remaining Big Banks to prevent conflicts of interest and remove “TOO BIG TO FAIL” argument.
8. After 18 months of Home Owner LOSSES provide massive mortgage help for remaining Home Owners especially those facing foreclosure.
9. Help Community Banks open credit channels to people/businesses and fund a High Tech Government Internet Central Bank (ICB) that serves at low cost the needs of Americans/Small Businesses.
10. Provide credit card interest at Fed Rate + 8%, Home loans at Fed Rate +3%, Auto loans at Fed Rate +5% from community Banks/ICB.
MEDIA is protecting WS Banks from REAL LIGHT OF DAY, worst CORRUPTION in History!
There had to have been collusion among the players who took subprime mortgages, which were probably rated BBB, and bundled them to produce something with an AA or AAA rating.
John Paulson (no relation to Henry as far as I know) noticed this discrepancy early on and bet against the subprime junk, making $1B+ profit. A private citizen, an investor, figured out that the ratings were bogus.
We were screaming about the Collusion between the Property Appraiser and the Fraud of the loan makers packaging the loans for sale almost 2 years ago on the Huff.
People called us crazy !!!!!!!!!!
Selling a product of Collusion and Fraud over three times nreaks the RICO ACT and is seen as operating a criminal enterprize !!!!!!
The traders at Goldman did the same thing. They profited handsomely from the collapse. Henry was instrumental at Goldman in peddling the stuff. He was in government when Goldman shorted the market. Was it just a coincidence Goldman knew the music was about to stop ?
The only problem with the American public is that we seem to have short memories and are simply reactive. The anger will pass.These guys are counting on this. Words like I'm "sorry" are often irrelevant in such cases, as CEOs and board members will go right on doing what they have always done once the anger subsides. We've been here before but with lesser global consequences. The question is how will we hold ourselves and others accountable over the long haul?
"Perhaps a great many people who created these bogus investment instruments and CEOs and board members who went along with them should be prosecuted and sent to jail." Why does this sentence begin with the word "perhaps?" The American people are SO TIRED of white collar crime with no consequences. When all the unemployed and angry people in this country get together, these guys may be wishing they were behind bars...
"My partner and I have created value by going directly to the banks, buying these assets with cash, and putting people back into homes. "
This is not insane and actually is the correct market response. The issue of course is your cash. I do not imagine that you have the hundreds of billions in defaulted loans that need acquisition for assistance to the original borrowers and present occupants.
One of the reasons you as a partner can do all of this is that you do not have to face the myriad of accounting, regulatory, and legal trapeeze acts that the original banker or holder of the paper has to face. Funny is it not, that you have more options than the bank who is handcuffed by rules?
You should hold yourself out as an expert in a neighborhood and advocate for troubled borrowers. If you can cut the lawyers out there is a middle ground for gain for you as well as the bank; and of course, the borrower. (Shakespere had it right)
They become the middle man.
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