Remember The Music Man? That's the musical where a con man tricks an entire town's parents into buying musical instruments they don't need by promising to teach music to their kids. Then he skips town. Only when he makes good on his promises is he's forgiven by the town and rewarded with true love.
If today's America was that town. they'd have written the Music Man a fat check and promised not to prosecute him. They'd even let him complain to the local newspaper about being called a "con man," the way JPMorgan Chase CEO Jamie Dimon complained to the New York Times about criticism of bankers.
As for those bilked parents and their disappointed kids, Americans in government and the media would undoubtedly say "Serves 'em right."
Problem...
Serves 'em right. That's the attitude our leaders are taking toward homeowners all across America, millions of whom were bilked by their banks into taking out loans based on inflated housing values. Our government has yet to provide these people with the relief so many of them deserve, even though that would provide the entire economy a huge boost and could create a million jobs every year.
Our leaders refuse to take action on mortgage relief, even though it wouldn't cost a penny and would actually shrink the Federal deficit by putting people back to work. When people work they pay taxes, and they stop using government assistance.
Nearly one in every four homes is underwater, which means that homeowners owe more for their mortgage than the home is actually worth. They borrowed money for a variety of reasons -- mostly to purchase or improve the home, but also as a source of consumer credit. The "serves 'em right" argument paints these homeowners as greedy and acquisitive while portraying the banks as innocent bystanders caught in the money-crazed stampede of middle-class American families.
That attitude overlooks the active role that the banks played in encouraging homeowners to borrow. Like the Music Man, banks convinced borrowers that they needed something -- in this case, a new home or a line of credit. They, along with accomplices in the economic and political fields, assured these homeowners that homes would always go up in value. Then they pumped up the market value of these homes, both indirectly and (in many cases) by hiring "friendly" appraisers who would be sure to overstate the home's value.
It was bankers and not homeowners who made billions by writing bad loans, then bundling them and selling them to unwary investors (thanks to corrupt rating "agencies" who rated them "AAA" to ensure their own cash flow). Those investors included states, municipalities, and pension funds. Then, after they'd collected their ill-gotten gains and paid themselves billions in bonuses, the economy crashed when the artificial bubble that made them rich finally burst. Bankers took more than $14 trillion in public assistance, much of which hasn't been repaid, then promptly paid themselves billions more in bonuses
Yet whenever anyone suggests helping the homeowners they've hurt, bankers and their fellow travelers howl in outrage about helping the "undeserving." But American families are at least as deserving as its bankers, and helping them would also help save our struggling economy.
... Meet Solution.
"New Bottom Line," a coalition of faith-based organizations and community organizing groups, has a proposal that would change all that. As Liz Ryan Murray explains, it would require banks to recognize the lost value of homes by adjusting the principal on underwater mortgages so that it reflects the actual market value of these homes.
This plan would have a number of immediate benefits beyond the obvious (and worthy) one of helping the homeowners themselves:
Resistance
Why wouldn't the Administration and the Congress do everything in their power to make this happen? Part of the problem is political. Bankers and their lobbyists have enormous political influence in Washington, and they're understandably opposed to a move of this kind.
The resistance is cultural, too. Most Republicans -- and many Democratic officials -- have been indoctrinated with the idea that an American family with an underwater home is "undeserving" of help. That's the same mentality that says bankers at Goldman Sachs or JPMorgan Chase do deserve to be shielded from the consequences of their own bad business decisions. This cultural bias is so deeply ingrained that many officials and politicians would rather let the country suffer financially -- and pay the political price for it -- than take positive steps to help the situation.
The third concern is a little more understandable, although it shouldn't be a barrier. Regulators are understandably concerned that a massive write-down of assets like this would lower the market value of our largest Wall Street institutions, leading to a market plunge and another potential financial crisis. But that can be prevented with judicious preparation on the part of elected officials, regulators, and the banks themselves. Preventive measures could include strict limits on compensation for bank executives and others until the banks are able to restore their balance sheets to fiscal sanity.
Happily Ever After
There's one element of this debate that's been lost in the noise and confusion: Bankers weren't just greedy and reckless. They were also so inept at assessing creditworthiness that one out of every four loans they've written turned out to be a bad risk. The problem isn't just greed. By any objective measure, these banks and their senior executives are terrible at their jobs. There should be a penalty for that, as well as for their more egregious misdeeds.
If Jamie Dimon and other bankers want love, they'll have to earn it the way the Music Man did: By taking responsibility for their actions and doing the right thing. Since they won't do it on their own, our government needs to give them the "tough love" they need so they'll be persuaded to mend their ways.
Think about it: Washington's debating deficits instead of jobs, and the public's fuming about it. This plan kills two birds with one stone. It creates a million jobs annually, restores consumer confidence, and pumps tens of billions of dollars back into the economy every year. And it actually the lowers deficit while it restores fairness and moral balance between the banks and their customers. Who wouldn't take a deal like that, especially with an election coming up?
When you think about it, the choice is a simple one: We can demand that the banks do the right thing, as the Music Man eventually did. Or we can continue to abandon the American middle class and let our economy keep flailing and failing. The first choice leads to a happy ending for everyone, while the second will leave everyone -- including politicians running for re-election -- facing the music.
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
& by the way? I'm STILL not a Libertarian. (Not a Scientologist either but that doesn't seem to matter much - they too still attempt mass conversion - 'resistance is futile' & all that.)
http://world.std.com/~mhuben/pk-is-against-liberty.html
These bankers are guilty of far more than just being bad at their jobs, they are guilty of essentially gambling with our entire nation's fortunes, and because they're ensured by the government they have no personal interest at all in making sure they don't lose.
What rational person WOULDN'T take massive risks when the consequences of failure are negligible (to you) and the reward for success, even partial, is millions of dollars?
From 1773:
"Are we in like Manner to be given up to the Disposal of the East India Company, who have now the Assurance, to step forth in Aid of the Minister, to execute his Plan, of enslaving America? Their Conduct in Asia for some Years past, has given simple Proof, how little they regard the Laws of Nations, the Rights, Liberties or Lives of Men. They have levied War, excited Rebellions, dethroned lawful Princes, and sacrificed Millions for the Sake of Gain. The Revenue of Mighty Kingdoms have centered in their Coffers. And these not being sufficient to glut their Avarice, they have, by the most unparalleled Barbarities, Extortions, and Monopolies, stripped the miserable Inhabitants of their Property, and reduce whole Provinces to Indigence and Ruin. Fifteen hundred Thousands, it is said, perished by Famine in one Year, not because the Earth denied its Fruits; but [because] this Company and their Servants engulfed all the Necessaries of Life, and set them so high at a Rate that the poor could not purchase them."
--"Rusticus," an anonymous author writing in "The Alarm," a colonial American newspaper, 1773.
NPR did a good investigation of this a while back.
http://www.npr.org/blogs/money/2010/07/22/128700329/mortgage
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"But after the housing market crashed, he owed far more on the place than it was worth.
So he decided to not to move in. Instead, he kept living in his old house, and stopped making payments on the condo.
"It went against everything that I was ever taught to believe," he says. "But if I have to compromise the way I live, I'm not really not going to do that. Not at almost 82 years old"
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So are we going to bail out this guy? That's absurd.
Also, there just is not enough money on the planet to fix this. As an example, lets say the avg principle that we are writing off is $150,000 (which is not unrealistic in FL, CA, AZ)........
If we just "write off" all of those for 1 million properties the cost would be $150 trillion dollars...2343750000 times larger than the GDP of the ENTIRE PLANET...LOL
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
The Financial markets are trying to fix this.
Which is the right thing to do.
"They are the rainmakers’ rainmakers, the biggest swinging dicks in the financial jungle. Their assets total $1 trillion, and their profits are in the billions, which they distribute liberally among themselves. When they have finished getting "filthy rich by 40", as the company saying goes, these alpha dogs don’t put their feet up.
... "We have a social purpose." Even though he proudly pays himself more in a year than most of us could ever dream of — $68m in 2007 alone, a record for any Wall Street CEO, to add to the more than $500m of Goldman stock he owns — he insists he’s still "a blue-collar guy".
... He insists we should be celebrating his bank’s success, not condemning it. "Everybody should be, frankly, happy," he says. Can he be serious? Deadly. Goldman’s performance, he argues, is the firmest indication of a nascent economic recovery that will benefit not just him and his firm but all of us. "The financial system led us into the crisis and it will lead us out."
http://greenwichleadershipforum.org/I'm_doing_'God's_work'._Meet_Mr_Goldman_Sachs__-_11-08-09_London_Sunday_Times.pdf
The fact he acknowledges the financial sector led us into the crisis is one thing, but to claim to be like Moses?
(Does anyone honestly believe they are doing 'God's work'? That they have a 'social purpose'? If you believe that, I've got this bridge ...)
Please, stop blaming "America" for what is almost entirely the Obama Administration, and more particularly, the Geithner Treasury Department. The proof of this is widely available. Instead of protecting Obama and Geithner, why not blow the whistle on them, so we can cut through all the obfuscation, distracting vague banalities, and get to the point?
Of course if "we" hold the banks accountable to a reasonable business model, the banking and finance miseries of the nation, public and private, would be radically reduced almost immediately. But to blame "America" is to protect Obama from his obstructionist tactics of defending the banks and finance institutions against the modest "reforms" of last year's legislation.
It is reporting like that which leads readers to say "why is he blaming banks when their political supervisors are refusing to supervise" and dismiss the reporter as less than serious.
http://www.huffingtonpost.com/2011/08/31/obama-mortgage-relief-foreclosures_n_943061.html
There's no such thing as a free market.
Critical/creative thought & Democratic concepts are important & useful in decision making.
In a society, who is to make decisions? An individual? A majority? The "market"? What we have is not perfect but if critical thought & democratic principles are not used, how would you suggest decisions be made?
Don't we have to agree on the goals or major objectives? Would it be reasonable to suggest one of the goals would be to minimize the effects these problems have on the whole of society, community or world?
• Identify the problem. — “What’re the real questions we’re facing here?”
• Define the context. — “What are the facts & circumstances that frame these problems?”
• Enumerate choices. — “What are our most plausible three or four options?”
• Analyze options. — “What is our best course of action, all things considered?”
• List reasons explicitly. — “Let’s be clear: Why we are making this particular choice?”
• Self-correct. — “Okay, let’s look at it again. What did we miss?”
What's your game plan? & are you considering the end game? Cui bono?
Where were these "homeowners" (ie: debtors) demanding that their mortgages be INCREASED to reflect the "actual market value of these homes" during the bubble when the values of houses were going UP instead of DOWN? Surely they weren't greedy enough then to expect that as borrowers they would keep 100% of any increase in value; while whoever had loaned them the money to make their purchase possible got no part in the increase?
And as that was happening, wall street made huge profits bundling mortgages into securities, in some cases, ALL of their profit was covered by the groups selling these fraudulent papers. No new mortgages - no more profitable fraudulent securities. So what do they do about that? Push loan originators to approve everyone who comes through the door.
Meanwhile, apartment owners kept rent at a level not far off from where an introductory APR would be, providing even more incentive for people to apply for a mortgage. Renters were faced with deciding between flushing money on rent - or get a home and hope that the economy stays strong so that they can meet the future payments. After all, if there was no reasonable cause for concern of default, the banks wouldn't accept their application, right?!?
I find it hard to call those people "greedy." You can call them naive, fiscally undisciplined, whatever - but if we're to call the wall street hoards "greedy," then it is totally unfair to use the same word on the people who gambled on home ownership in a climate that intentionally glorified it and profited mightily on its easy attainment.
No legislation passes that is not sponsored by and for the benefit of the Mortgage Banker's Association. The sell was easy; lobbyists provided all of the sales pitch necessary to sell it to the American public and campaign funds required to grease the wheels. There's no legislation ever going to pass that would ever harm or otherwise create loss on Wall Street and that's just a fact.