I’ve struggled with how best to compose this, the last offering in this series so much so that I’ve had to re-work the composition no lest than eight times. Seems there’s so much more to say and, accounting for the desire to not publish a manuscript, I’ve had to severely edit the piece. My only worry of course is that it doesn’t quite deliver the “punch” I intended. In other words, an item looses its identity when it no longer resembles itself. Let’s just move on!
From my perspective I believe the resolution to the current mortgage crisis will ultimately rest with the Government, doing the bidding of its Lords, stepping in with the customary “bail out”. It will be dressed and colored in a variety of soft and seeming digestible morsels but it will be, none the less, a bailout! It will be packaged with a variety of proposed legislation expanding Government oversight, modification (expansion) of various Government programs all funded by tax dollars. More on this later!
However, in understanding or creating a sound resolution of which, frankly, I find the Government uniquely incapable of accomplishing, one has to understand the problem. Clearly, from my review of various Government Officials and the myriad of News Outlets and their Editors, I’m still completely stunned by the following two points: either they are completely ignorant or they are complicit. In either case, the relevant issues are not being explored or they are, by design, being completely ignored.
Here are a couple of “bullets” I want to place on the table. You, we, need to be very clear about their relevance:
(1.) The U.S. power (Economic, Political, the Military being only an extension of the two) is based entirely on its control of financial Markets. Without this grip, the U.S. will only sink further in to third world economic status and take it citizenry along with it.
(2.) One of the primary ways the U.S. maintains its influence is by being the “maker” of the World Reserve Currency. Exercised, primarily but not to the exclusion of others, by having Oil traded in Dollars. You, China, India, etc. want oil, you pay for it in Dollars.
(3.) Oil producing nations, primarily those in the Middle East, have long historical ties to the West, first with (primarily) Britain and then of course, with the U.S. There is a great deal of Wealth and Influence that accompany this fundamental fact. This is what really angers the Fanatics!
(4.) There are several Countries that would love to see the U.S. buried by replacing the Dollar with another. But which one? No matter, the consequences of this, though some would say well deserved, would be an Economic apocalypse, Worldwide!
(5.) The U.S. will never, sadly, return to an Industrial Economy! Our uncontrolled nihilistic spending habits have pretty much perfected this reality. We’re no longer even loyal to our own Country! This being the case would one ever expect any other outcome!
(6.) We are no longer a Nation of like minded people bound by a common ideal which cherishes freedom and independence! We have become a People who are bound by the illusion of freedom and independence regulated by a National Government which cherishes more so its own Freedom and Independence!
(7.) The World Economy’s transition to “market force” capitalism has produced a very responsive engine that moves in direction and speed at an ever, seemingly, increasing rate. To attempt to use Government to regulate and/forecast economic trends or, for that matter, economic recovery seems to me, at best, to be an exercise in futility. I actually think this is a good thing!
(8.) The U.S. has transitioned to, largely, a serviced based economy. A serviced based economy prospers only in the presence of the following two items: Inflation and persistent consumer spending habits. Inflation, largely, being a part of a fiat money system and its component, debt spending. The typical American household spends money that is generated from debt creation largely because they’re household income is insufficient to fund these purchases. This is why we have among the lowest savings rates of any “industrialized country” and why our debt load is the highest in the world!
(9.) We are in Economic Uncharted Waters to be sure! On an individual (personal) basis I believe that unless we want to move further down the ladder of Economic Prosperity and with the understanding that there is indeed a New World Order (or Disorder), this Country will need to make some intensely difficult choices!
Now to “The Resolution” !
The Mortgage Crisis is only symptom of a much bigger problem. Attempting to fix it with Government sponsored “rate freeze” or “subsidies” reminds me of an old joke that gives an account of a man who’s going on holiday, to explore the Sahara Desert, takes a car door as part of his “gear”. Upon arriving to his destination the tour guide ask “…why the car door?” The Travelers response is “…oh yes the door, you see, when the day is at its hottest point, I can simply roll down the window to cool off!” Utter nonsense, won’t you agree?
WE are not experiencing a Mortgage Crisis, we are experiencing a Wealth Creating Crisis! And, to make it worse, there are clouds forming on the horizon that will make this one look like a quilting party! It is the product of were all great catastrophic economic and political boondoggles come from! Yes, your friends and mind, the U.S. Federal Government! Of course I’m speaking of Medicaid/Medicare and not to be forgotten, the Social Security system! This is what you get when Government is asked to manage money!!
The “FIX” for the Mortgage Crisis is not easy, it would not be popular as there will be no Political gain to be had from it. But it is SOUND, economically and morally! Know that I’m not a Socialist so don’t be surprised by me stating that Home Ownership, though your right, is not an entitlement. You work for it! Here are my recommendations:
A. The responsibility for “Loss” rests ultimately with the creator of the “supply of funds”. There exists sufficient guidelines for “lending qualification” to whit the argument that people “lied” on their applications is an idiotic notion at best. If I make a bad business decision, I pay the price!
B. A review of the “sub-prime” portfolio’s should be executed immediately to determine which of those loans are in fact “sub-prime” vs. those that have been “classified” as sub-prime though “originated” as “A Paper” loans (by the way estimated to account for nearly 61% of the so called “sub-prime” portfolio of loans). Those that have been fraudulently classified are sent back to the originating Lender and their penalty is that they loose “recourse” and or “collateral” status of the “secured” property.
C. The Borrowers should all be “re-qualified”, those that meet the qualifying requirements are able to be considered for “loan restructure”. Those that can not, well, let’s just say they shouldn’t have been there in the first place. They should have their credit “washed” and the Lender should refund all of their fees, but no more.
D. Any home that is “surrendered” by the Owner is assigned to be “warehoused” pending disposition (sale). No exceptions! The proceeds of/from sale of these properties should go to a “investment portfolio” that is used to make loans to “qualified” candidates according to their means, not their skin color! If a “means” test is not used, then you simply create a whole new generation of “slums”/ “projects”, we have no need to repeat the classic failures of the past! Proceeds from the sale of these property must never make it back in to the “financial markets”. Never! I was there in the S&L/RTC days, I saw the results and practice of greed and avarice in Government practices. We must not repeat this again!
E. We need to reestablish “value” in home ownership. You “must” meet minimum qualifying standards. Home Ownership will be encouraged but not subsidized by idiotic “housing” programs. Prices will be “market rate” only. Max Loan amounts will be passed on “Mean” home prices not “Medium” establish by region and will benefit from a fixed rate mortgage offered in either 15, 20, 30 and 40 year terms. Minimum down payment of 15% will be mandatory and their will be no “piggy back” origination on/at purchase. The Fixed rate will “index” with the rate of inflation but within established floor/ceiling adjusted every 5 years. Subordinate financing will not be permitted within the first 2 years of ownership. Thereafter it will be limited to a combined loan-to-value (CLTV) of 90%. To accumulate funds for these loans a “market” will be established collateralized by the acquiring “real property” and the securities issues without discount. The “yields” will be fixed with no more than a .5% margin/”loading” (at point of sale) permitted. To avoid/discourage “churning” and to increase market stability, it should be considered that there be a minimum “holding” period”. Investors will be enticed to acquire these securities as they will bear a “tax free” status on the Federal level. Determination of where “funding” will be available occurs by consent of the State to observe the “tax free” status as well.
The truth of the matter is the current Lending Guidelines are absurd. They were absurd when they were proposed, they were absurd when they were enacted and they’ve been absurdly applied ever since. Creative Thought by Committee produces,…well, thoughtlessness!
Also, there are far to many “do gooder” Lending programs out there that further dislodge any attachment to sound financial logic. FHA, Va, CalVet and the list goes on and on! Why do we need involved Government in these programs. If there sound and there exists a reasonable need, create an incentive for the market to provide it. Good Lord,…but never let the Government do it. When you do this, we end up with legislation that includes funds for a bridge in Alaska, a sewer line upgrade in Arkansas, a bridge in Nevada named for its Senator and the list, tragically, goes on and on! Somehow, some way, this graft has to be brought to an end! NOW,…the only REAL FIX!
(F.) Education! Our education system is a disaster! It is the product of Socialist/Marxist ideology that history documents were the product of an obsessive-compulsive disordered freak that though has been abandoned by most of the world, our ‘60’s era thallus /erudite’s who escaped detox are now in charge of the process and what a mess they’ve made of it!
If the U.S. is going to have any economic stability (and future) then we are going to have to become a perpetual producer of exceptionally educated Scientists, Engineers, Mathematicians etc. I promise you, we don’t need more Attorneys! 50% of the Law Schools should be shut down. The analogy sounds something like this: if the Bureaucrat and their maize that has become the albatross which is our most inefficient Government, then Attorneys are their commissary! Let’s just stop feeding them all!
We will also need to insist on the strict adherence, internationally on the issue of “intellectual property rights”. This nonsense of subjugating U.S. law to the Hague is ludicrous! What idiot expects a Country to lead that follows!
There’s no place for Union control in the education process. If the Unions are going to be able maintain this control then a “voucher system” is the only solution! We have got to get back to the ideal of “perfected outcome”!
We’ve got to reign in the cost of Education at the collegiate level and we do this by revambing the State School/University Systems. Dump Tenure, Dump the Unions the proven that they have no value and only produce and perpetuate mediocrity! Give the Educator a property salary the has matching contributions to a pension (non government) provide them with bonus for performance but for God sake, enough with the rewarding of the incompetent.
We’ve got to start producing results for a change. Everyone goes to school, Everyone learns. You miss school, you loose driving privileges, you have curfew restrictions, you have community service. You don’t go to college you go to the military for 4 years or you learn a trade. You go to college, great, you drink in stead and/or do drugs instead of study and your GPA is under 2.5, you go to the military for 4 years and learn a trade.
All Public Schools will have a dress code which will be strictly enforced. Parental supervision and involvement will be strongly encouraged through various parochial methods.
In short, the system is badly broken and desperately needs fixed! Children are so precious, the losing/wasting of one is, one to many! We need to be planting seeds of excellence that will produce towers of self esteem! Presently, for the most part, we produce illiterate gangsters who are more efficient at perfecting body language than they are carrying on a intelligible conversation! We can do better,…we must! Sadly, like so many areas of this Country, unless there’s Political mileage in it the hucksters won’t touch it. Unless the Unions are inebriated with more money, they’ll simply road block any meaningful redirection! There IS a solution to this! There IS a SOLUTION! Perhaps we’ll chat more on this some time in the future. Just know, Education is the Golden Key to this Country’s troubles, on so many levels! Why do we do nothing?
There’s so much more to discuss and details, I know, some of you will want to tackle me over. I’ll be waiting for you!
In the mean time, on your own, right there were you live, in your own space! Do me a favor, say a prayer for Guidance, Clarity of Thought and Purpose for all!
In closing, here’s a few repeats from “Part 2”:
“My great fear is also a fundamental truth! ‘When silence stills the conscience and thinking mind, the object of promise sees not its way!’ A powerful truth in deed!”
“In the final analysis, as Ayn Rand said ‘…if you perceive a conflict in my logic it is only the result of your not pursuing the concept to it’s obvious conclusion…’”
Stay well, prosperous and share a Blessing!
Curtis C. Greco, Founder