If the banks are allowed to forgo the market to market accounting rule, that requires banks to value their mortgage-related assets at current market prices, what do they value you them at. Or is it the fact that they have to devalue their over all holdings by the amount of the write-downs taken on mortgage assets?
In other words, the banks would be doing much better on paper if the they did not have to adjust their books for the devalued home values of the mortgages they are holding? And does that include all mortgages or just the defaulted ones?
Thank you in advance for the explanation. I am just trying to understand all of this.
I just read a very good article from the Huffington Post. I thought I would share.
http://www.huffingtonpost.com/bob-cesca/fake-balance-and-mccains_b_133375.html
If the banks are allowed to forgo the market to market accounting rule, that requires banks to value their mortgage-related assets at current market prices, what do they value you them at. Or is it the fact that they have to devalue their over all holdings by the amount of the write-downs taken on mortgage assets?
In other words, the banks would be doing much better on paper if the they did not have to adjust their books for the devalued home values of the mortgages they are holding? And does that include all mortgages or just the defaulted ones?
Thank you in advance for the explanation. I am just trying to understand all of this.
While I understand why you and others had to vote for the economic bailout package and I accept it. I believe more needs to be done to protect the taxpayer and the consumers.
AIG is a prime example of what is wrong with Corporate America. I believe that if a company is so large and so far reaching that their demise would cause the collapse of our economy or a sector of our economy, they are too big and need shrunk. Sir, if a company has grown so large and so far reaching that their demise could jeopardize millions, then they need to be dismantled, made into smaller competing companies.
To argue my point further, I do not believe it is unreasonable to request this action in light of the fact that it is I, the taxpayer, having to bail them out while they continue to act fiscally irresponsibly. Why wouldn't their executives find it utterly repulsive to throw such a lavish event for their independent sales force in lieu of their financial crisis? Their independent sales force should simply be happy to be able to make a living considering this economy is teetering on the edge of a depression.
I urge you to push for immediate action and intervention with AIG before allowing any further public monies to be allocated to that company. Enough is enough.
In 1938, a governmental agency named the National Mortgage Association of Washington was formed and soon was renamed Federal National Mortgage Association (FNMA or Fannie Mae). It was chartered by the US government as a corporation which buys Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages on the secondary market, pools them, and sells them as "mortgage-backed securities" to investors on the open market. FNMA was later privatized.
Additionally, in 1970 the Emergency Home Finance Act created a new secondary mortgage market participant, the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), which had as its stated objective providing secondary mortgage support for conventional mortgages originated by thrift institutions. The Act also allowed FNMA to buy conventional mortgages in addition to FHA & VA.
Freddie Mac was created to provide competition in the secondary market, where Fannie Mae had continued to have a monopoly.
FREDDIE AND FANNIE ARE NOT THE REAL PROBLEM
From what I have learned Fannie and Freddie were buying up loans in order to relieve local banks and mortgage companies of debt in order that they may make more loans. The problem is two fold, banks and mortgage companies came up with exotic ways to fund people who probably should not have been funded in the first place. For example, interest only loans and low entry payments with ballooning interest payments later. They marketed these to people by stating that the price of your home does not go down and they counted on that theory.
Well the ballooning interest payments made for more attractive mortgage backed securities (MBS). Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization.
The key statement in the description above is that the principal and interest payments are what was so attractive to investors. The more people they had with ballooning variable rate mortgages, the more money was to be made buying and selling of MBS's.
Most MBSs are issued by the Government National Mortgage Association Ginnie Mae), a U.S. government agency, or the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises. Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees that investors receive timely payments. Fannie Mae and Freddie Mac also provide certain guarantees and, while not backed by the full faith and credit of the U.S. government, have special authority to borrow from the U.S. Treasury. Some private institutions, such as brokerage firms, banks, and home builders, also secure mortgages, known as "private-label" mortgage securities.
Therefore, the real problem or the real villain in this is the United States Government, more specifically the Securities Exchange Commission for not providing more oversight!
DEREGULATION AND LACK OF GOVERNMENTAL OVERSIGHT IS THE PROBLEM.
Mike Easley, D is the governor of North Carolina and spoke last night about the Bradley Affect. The Bradley Affect refers to a discrepancy between voter opinon polls and election outcomes when a white candidate and a black candidate run against each other. In 1982 Tom Bradley ran for Governor of California. When the voters were polled they overwhelmingly stated that they were voting for Badley. On election day, they voted for his opponent. When pollsters went back to interview the respondents, they found that many white voters did not want to seem racist by telling the pollsters that they were not going to vote for Bradley. This also happened in Virginia, however, Douglas Wilder still prevailed but not by the 9 percentage points that the pollsters had predicted, he won by only a half percentage point.
Fast forward over 20 years to today, Governor Easley predicts that there is reverse Bradley affect happening. Voters are stating that they won't vote for Obama but when they get into that voting booth and think about the economy and where this country is going, he believes voters will pull that lever for Obama. He has taken a very scientific poll to support his theory. His barber. His barber states that people are incredibly unhappy about the direction this country is going in and John McCain is not fairing well among his customers. He says his barberis a good barometer for him.
North Carolina for the first time in many years is leaning towards the Democrats. Voter registration is up 10 fold and those voters are registering Democrat. As of October 9th, here is how it looks: Democratic: 2753569 Republican: 1965684.
Governor Easley said it is pretty clear that John McCain is inept on the economy, he is willing to continue down the same path as George W. Bush and his latest proposal to buy up the bad mortgages is simply out of left field and the Treasury has that ability to do so under the bill that was just passed. McCain is out of touch.
Let's hope he is correct about this. The Bradley Affect happened 20 years ago and we have grown as a nation. Additionally, younger people are involved and thank God they don't see color the way their parents and grandparents do!
Good for Sheriff Dart. Someone has to stand up and say enough is enough. Not every law is right. We know that from history. If all the laws int he United States were correct and just, we would not have had slavery, it would not have been illegal to interacially marry, it would not have been right to have Jim Crow laws and the list goes on.
Something similar happened to me. I paid cash for a home to a broker who was a friend of 20 years. We were to go to closing and he kept putting it off. As it turned out, he never turned the money over to the bank and the bank foreclosed. My daughter had to move out. I had to hire a lawyer and file a civil lawsuit. I won the judgement but now have had to hire a professional collection agency. Some people are not as lucky as even I. Meaning I have the resources to hire legal representation and I have the funds to wait this out. What about the people who are not a fortunate? Don't we have a moral obligation to protect those who cannot protect themselves?
Sheriff Dart is a hero in this mess!
Illinois sheriff: No foreclosure evictions on my watch
CHICAGO, Illinois (CNN) -- Sheriff Thomas J. Dart said Wednesday he is suspending foreclosure evictions in Cook County, which had been on track to reach a record number of evictions, many because of mortgage foreclosures.
Sheriff Thomas J. Dart of Cook County, Illinois, says proper eviction procedures aren't always been followed.
He said many of the evictions involve renters who are paying their rent on time but are being thrown out because the landlord has fallen behind on mortgage payments.
Mortgage companies are supposed to identify a building's occupants before asking for an eviction, but sheriff's deputies routinely find that the mortgage companies have not done so, he said.
"These mortgage companies only see pieces of paper, not people, and don't care who's in the building," Dart said. "They simply want their money and don't care who gets hurt along the way.
"On top of it all, they want taxpayers to fund their investigative work for them. We're not going to do their jobs for them anymore. We're just not going to evict innocent tenants. It stops today." 
Watch sheriff announce he won't evict innocent tenants »
Dart said he wants the judiciary or the state Legislature to establish protections for those most harmed by the mortgage crisis.
In 1999, Cook County had 12,935 mortgage foreclosure cases; in 2006, 18,916 cases were filed and last year, 32,269 were filed. This year's total is expected to exceed 43,000.
"The people we're interacting with are, many times, oblivious to the financial straits their landlord might be in," Dart said. "They are the innocent victims here and they are the ones all of us must step up and find some way to protect."
The Illinois Bankers Association opposed the plan, saying that Dart "was elected to uphold the law and to fulfill the legal duties of his office, which include serving eviction notices."
The association said Dart could be found in contempt of court for ignoring court eviction orders.
"The reality is that by ignoring the law and his legal responsibilities, he is carrying out 'vigilantism' at the highest level of an elected official," it said. "The Illinois banking industry is working hard to help troubled homeowners in many ways, but Sheriff Dart's declaration of 'marshal law' should not be tolerated."
I personally do not feel the man should be fired. I believe that he should be given some counselling. If you fire him, that is giving too much weight to a word and perhaps giving it credibility. Perhaps I am wrong on this!
7th-Grade Teacher to Students: Obama is a ‘N’-Word October 8th, 2008
7th-Grade teacher to students: Obama is a ‘N’-word. Angry parents in the northwest Florida community of Marianna want a middle school teacher fired after he put the “N”-word on the board to describe Democratic presidential nominee Sen. Barack Obama. The Marianna Middle School teacher, Greg Howard, is now serving a 10-day suspension after writing an acronym on the dry-erase board on Sept. 26: “C.H.A.N.G.E. - Come Help A N*gg*r Get Elected.” But many parents want the 17-year teacher fired. The seventh-grade social studies teacher’s class has 17 White students, six Black students and one Asian student. Initially he was suspended for the day without pay, but that was elevated to the 10-day punishment. He must also write a letter of apology to students. “We feel like the punishment is sufficient,” Larry Moore, superintendent of the Jackson County School District, told The Detroit Free Press. “We did not feel he had to be fired.” NAACP officials say they will reserve their actions in the case until their investigation is complete. Audrey Wad, who has nieces and nephews at the school, didn’t need any more information before expressing her outrage. “To me, it’s hurtful,” she told the Free Press. “The idea that he would impose his political opinion on the children is wrong to me. That’s where he crossed the line.”
He was walking that very fine line and performed exceptionally well. I was both impressed and proud of our candidate. I like the aggressiveness. It was right on.
Below is an article I ran across from the Brookings Institute. Evidently a few years ago, Columbia went through a crisis such as the one we are now facing. The article essentially states that helping borrowers, who are in too much debt and are fiscally irresponsible, only helps in the short term and is not sustained in the long term. The behaviors of the people were only changed positively for a short term.
Lessons from Another Crisis: Why Providing Debt Relief for Households is Not a Good Idea
Another Crisis: Why Providing Debt Relief for Households is Not a Good Idea
Mauricio Cárdenas, Director, Latin America Initiative
The Brookings Institution
As many other Latin American countries, Colombia faced a severe financial crisis in the late 1990s. As is currently the case in the U.S., the root cause of the problem was a rapid increase in loan-to-value ratios that made mortgage delinquencies and defaults climb to unprecedented levels. In Colombia, this was the result of an implosion of real estate prices after the end of the housing bubble of the mid-1990s combined with an increase in interest rates. At that time mortgages were indexed to the nominal deposit interest rate, causing a significant increase in the outstanding value of the loans. With an increase in the numerator and a decrease in the denominator, LTVs rose very rapidly causing an increase in delinquencies and foreclosures that make the current U.S. crisis pale in comparison (See Figure).
How did Colombia deal with this situation and what are the lessons for the U.S.? In addition to discarding the existing indexation system, the Colombian government responded by adopting four measures:
Large banks that were too weak to survive were intervened while the smaller banks were allowed to fail. The government then appointed new administrators and injected capital into the public-owned banking system. The cost of these rescue operations was approximately 4 percent of GDP (if the same amount were to be allocated in the US it would be equivalent to $552 billion). About two-thirds of this outlay was later recovered by selling two banks in 2005-06. The government still owns one large bank. In the end, not a bad deal for the government or the banking sector.A facility was created by the government to provide capital to private banks. To access this facility, banks were required to put their distressed assets outside their balance sheets. The government took preferred shares, while shareholders had to provide more capital and lost control over key decisions, including dividends. The preferred stock received interest. All these loans were paid back and the government made a profit because interest rates were not subsidized. A facility was created by the government to collect the toxic assets of the government-owned banks. This entity began gradually selling the bad assets at market prices. A large chunk of the remaining assets of this facility were auctioned in 2007 at a profit to the government.Write downs and other forms of debt relief like subsidies for the repurchase of foreclosed homes were given to mortgage debtors. The Colombian Treasury issued debt that was given to the banks in exchange for the write offs (with a cost to the banks because these bonds paid a lower rate than the original mortgages). On average about 15 percent of the original debt was taken out of the households’ balance sheet. The cost to taxpayers was equivalent to 1.6 percent of GDP. If something of this magnitude were to be given to households in the U.S. it would be equivalent to $221 billion. This money was never recovered and did little to solve the problem
In the U.S., it is now argued, as it was then said in Colombia, that households have too much debt to maintain while their assets are losing value. Congress is proposing the idea that households are buried under a pile of debt that is essentially impossible to pay and these homeowners must be rescued. In addition, certain Members of Congress ask, if everyone is getting relief, why not America’s working families?
The figure above shows why households should not be given debt relief as part of the recovery plan in the U.S. as it show that in Colombia, non-performing loans actually decreased momentarily right before the relief announcements (loans had to be performing to be eligible) but increased dramatically afterwards. Of course, the higher the fraction of NPLs the more difficult the problem is. So if households believe that delinquencies are somehow rewarded no rescue package will ever be sufficient. Although it may be tempting for Congress and the administration to provide help to troubled homeowners, it is a bad idea that the U.S. has to avoid, not because it is costly and ineffective, but because it makes matters worse.
Someone posted moments ago that Obama has finally hit the 51% mark. I went to the Gallup website to view the charts and graphs. It must pain the conservative folks over at Gallup to have to publish this change in leaders. But what really gets me is that this poll is reported on television each news cycle and the number of interviewees was only 2,747. People really put stock into these polls and to me how is 2,747 really representative of the electorate?
Can someone explain this to me because I simply am at a loss.
Bill Clinton may have been the president of the United States for 8 years, but the Democrats did not have control of Congress for those 8 years nor have we had control of Congress for the past almost 8 years. Let us remind the American public that under Clinton, the Republicans were in power in Congress for 6 of the 8 years he was in office.
When Bush was elected the Republicans were still in control. The House of Representatives has controlled by the Republicans for the past 12 years. It was not until 2006 that we regained control of the House. The Senate was controlled by the Republicans for 10 years.
So while the public wants to stand and blame the Democratically controlled Congress on the Democrats, they need to do a little studying and find that there is plenty of blame to go around and there is blood on the Republican’s hands too.
Check the facts:
http://en.wikipedia.org/wiki/United_States_presidents_and_control_of_congress
Mark Warner of Virginia was right on the money when he stated that George W. Bush simply has no vision. After 911, GW had the perfect lead into call the country to arms and ask us to conserve energy. Ask us to invest in America by buying stocks or savings bonds. But that is not what he did, he asked us to go out and buy big screen televisions. He asked us to purchase homes we could not afford, cars we did not need.
Now the chickens have come home to roost. The problem is that the American people do not fundamentally understand what is happening right now and what it will take to get out of this. I am guilty of this too or else I would be a millionaire.
First and foremost you must have confidence in America. We will not fail and we are down right now but we will get back up.
Second, money that you have right now will be worth more tomorrow. Even if you have invested in 100 dollars in the stock market today, and the market goes down and for several months, that 100 dollars is only work 50, the market will go back up and in time, that 100 dollars will be worth 1000 dollars. It always goes up over time.
Third, investing in the stock market in a sense is like having faith in God. I know this is a stretch of a comment but here me out. In order for the time value of money principle to always be right and to work, there had to be some precedence or evidence that money today will always be worth more tomorrow. That that precedence is time. If you trend the markets over time, the market tends to be more bullish (good) than bearish (bad). Why? Because of consumer confidence, having faith in the free market system.
I realize that after last week, it is very difficult to have faith in a system that is so riddled with corruption and greed, but the alternative will make us a third world country. So the moral of this pain that we are seeing is that we are going to have to save more and invest more. Expect steady 6% returns on investments instead of 16% returns on investments. People are going to have understand that what goes up must come down even in the market place because we are running on scarce resources. There is not an infinite supply of resources in this world. They are finite. But to not have faith in the free market system, to not continue to invest in this system of ours, no matter how flawed it is, will make us something many of us are afraid to face: No longer the leaders of the free world!
After watching last nights debate and listening to my cousin who was furious with the fact that Sara Palin was clearly regurgitating information that she had learned over the past few days. Now my cousin is not a political junkie like myself and when she takes the time out of her busy life to watch the debates, she is doing so in an effort to better understand the issues and where the candidates stand on those issues. She is taking this process very seriously as she owns a home, has two children in college and a husband who has been socking money away into a 401K plan for years. She and her husband have lived by the rules their entire married life, 24 years, and have an A+ credit rating. When she tuned into the debate last night she expected to see two people serious about the status of the economy and with concrete plans for the future. That is not what she got.
The McCain campaign fundamentally believes that the American people are dim-witted. Palin’s folksy vernacular last night was living proof. What’s worse is the fact that the pundits think it was a stellar performance as well. They have all but endorsed this dim-witted act and I am at complete odds with why this is being allowed.
First of all, when you study the video from Palin’s Alaskan debates, she did not have the accent she is now using nor did she have the folksy language or style to her speaking. This is an act. Even when you watch the speech she is giving at her church, she is not using that vernacular or style. Here again, the Republican Party is counting on us not recognizing that we are being bamboozled again. Can the American people truly be this easy?
Secondly, when studying the Alaskan debates, look at her eyes, they were a live and clearly actively form thoughts and pulling together sentences to answer the questions that she was being asked. She did not need to tell the moderator that she was not going to answer the questions; she was going to do things her way. She followed the rules because she had command of the information.Last night what we saw was an individual who had been given an enormous amount of information, she was told how to deliver it and that she did.
With that said, my friend argued that Joe Biden was given information to study too. Here is the difference, Biden is given information to refresh his memory and ensure that he is getting the facts straight. He is not being given information because he is a complete utter blank slate. And to that point, even the governor of Maryland would have been able to converse on foreign policy, the economy and where this country needs to go. While Martin O’Malley, D, and governor of Maryland is not one of my favorite politicians, he would have been ready to take the national stage unlike Palin. The mayor of Baltimore, Sheila Dixon would have been ready to converse on an intelligent level and speak to foreign policy. I have heard her do it.
But the fact still remains that the American people do not seem to be bothered by the erratic behavior of the McCain Campaign nor his complete utter lack of vision for this country. The media and the pundits seem to be giving Palin a pass for ignoring the debating formats and standards. Her performance was stellar to them. I selected the word performance because that is what the McCain Campaign thinks of her and Obama. You see to the McCain Campaign, Barack Obama is neither qualified nor ready to lead. They truly believe that the reason he has been so successful is his persona, his “celebrity”. Now they have their own “character”, their own “celebrity”. As a result she is pulling in the crowds, without her, McCain’s rallies would look like something out of the geriatric ward.
I have read post after post across the web from individuals complaining about Congress, complaining about why nothing ever gets done, and complaining about the war, jobs being shipped over seas and a plethora of other issues. Well unless and until the citizens of America stop allowing themselves to be bamboozled with the rhetoric and decide once and for all we want to elect individuals who are not the dumbest guy/gal in the room. We want to elect individuals who have command of the subject matter, even if it is boring. But more importantly, we need to recognize that we have allowed our attention deficit disorder, or desire for the “quick fix” and evidently the lack of command of the English, to take precedence when selecting our candidates. A good parent is not their kid’s friends; well a good politician is not always someone you want to have a beer with. A good politician just may be someone who is smarter than you, has attended a few more schools than you and guess what, it is okay to speak in complete sentences absent of any slang!
I was fact checking the debate last night and this is an interesting site and analysis.
http://www.factcheck.org/elections-2008/factchecking_biden-palin_debate.html
Read More »
http://www.cnn.com/2008/POLITICS/09/25/palin.probe/index.html
The Alaskan state representatives are having difficulty getting witnesses to cooperate. Does this sound familiar? How many investigations have we witnessed during the Bush years that have been tampered with?
I don't know about anyone else, but I am ready for a change. I am ready for an individual who I believe would be honest and true to himself. I want an individual whose spouse would force them to be true to themselves. Michelle Obama does not appear to be the type of woman who would stand by and allow their husband to conduct the type of campaign McCain has or do the things Bush/Chaney has.
OBAMA/BIDEN '08
I recently ran across a picture of McCain shaking Obama's hand before the debate. Notice where McCain is looking. He does not want to look Obama in the eyes. Why is that? I believe it is the fact that Obama is young and new to the scene, but I also believe it is because McCain does not view Obama as an equal.
You know McCain fought long and hard against Martin Luther King Day being made a national holiday. Even after it was made a holiday nationally. He fought against the State of Arizona making it a holiday. Why would he care? Why would he fight so hard and so long against what had to be seen as the inevitable?
Additionally, during the debate, he continually tried to be little Obama by saying he doesn't understand. Talking down to him. Regardless if you think Obama is "experienced" enough, one really cannot say that he is not intelligent enough. McCain has some real issues.
Warren Buffett is trying to single handedly save the U.S. economy. Boy if his investments pay off, laws should be changed so that his face can be on our money. Today Buffett purchased several shares of GE and plans to pump more of his fortune into our economy. He said that he has about 40 Billion left, he never goes before 10 Billion so he has 30 Billion dollars to sure up the U.S. Economy. All the while he is urging congress to come up with a deal and now.
While speaking with a CNBC reporter over the phone from his plane, Buffett told the reporter, "I can't hear you over this GE Engine! They sure make great engines".
http://money.cnn.com/2008/10/01/news/companies/buffett_ge/
http://desktop.websurveyor.net/analysis/generatepublicreport.aspx?esid=253283&subaccountid=89350
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