News, Research & Insights for American Homeowners, Patriots & Constitutional Conservatives
Dislike.
Not only is this not surprising, it’s arguably warranted, given what has been revealed in the days after the world’s largest IPO turned into the largest IPO faceplant in recent memory. Three investors have filed lawsuits against Morgan Stanley and Goldman Sachs after revelations that it revised its revenue forecasts on Facebook just before taking [...]
JPMorgan Chase’s CEO, Jamie Dimon, says he doesn’t want to make excuses, but his bank’s $2 billion losses in the last 45 days were due to errors, sloppiness, terrible execution, bad judgment and strategy, and the mark-to-market environment.
Want to know something? Those are exactly the same things that I would have guessed caused the loss of $2 billion in 45 days. I have no trouble imagining that those things could contribute to some fairly significant losses.
Dimon also told analysts that in hindsight he should have paid more attention to “trading losses and… newspapers”?
Okay, that shocked me. I mean, $2 billion is a lot of money to lose in 45 days when it could have been prevented just by noticing the losses and paying attention to newspapers.
I think I’m going to go ahead and send Mr. Dimon a one-year subscription to the New York Times. I know he has the money to buy his own subscription… or the entire newspaper for that matter, but he must be terribly busy because he lost $2 billion in 45 days for want to newspapers so it seems the least I can do.
And I sure am glad he didn’t want to make any excuses. I hate CEOs that lose billions and then come out making all sorts of excuses, don’t you?
According to CNN/Money…
“The group that suffered the losses is part of the bank’s so-called corporate unit, and had been making trades designed to hedge against risk.”
Wait a minute… they were trying to hedge AGAINST RISK? And they LOST $2 BILLION? Now, that must be frustrating… I hate it when that happens. Like, when I’m eating really carefully and I stick a fork right through my cheek. Don’t you hate that?
CNN/Money also had the following to say…
“Last month, rumors swirled around a JPMorgan employee based in London who had, according to the Wall Street Journal, been taking large positions in credit default swaps. The employee was said to work in the bank’s Chief Investment Office.”
So, according to the WSJ on April 6, 2012, the guy had been “dubbed the London whale,” and was a “French-born J.P. Morgan Chase & Co. employee named Bruno Michel Iksil.”
“Mr. Iksil has taken large positions for the bank in insurance-like products called credit-default swaps. Lately, partly in reaction to market movements possibly resulting from Mr. Iksil’s trades, some hedge funds and others have made heavy opposing bets…”
Oh, good Lord. We’re still doing this sort of thing, huh? Some guy at JPMorgan Chase in London was gambling with credit default swaps, no one was watching, and next thing you know the bank was down $2 billion?
And this came as a surprise to Jamie? I guess there’s no system in place at JPMorgan Chase that might of caught the losses at $1 billion, is that right? Well, now there’s an idea for a new product that I would think would sell like hot cakes. Someone should make a $1 Billion Lost Alarm. You know, after you’ve lost a billion… the bell rings.
And since this seems to happen in London most of the time, here’s what the UK version could look like…
And we don’t need the Volker Rule? The rule that would prevent banks from placing outrageous bets with their own money, and place limits on the amount of capital they can invest in risky things like hedge funds and swaps, to name but two. The rule that’s part of Dodd-Frank’s financial reforms… the ones that are being fought tooth and nail by the financial services industry lobbyists and bank CEO, including Dimon.
According to the Washington Post on May 2nd…
“The warning from Daniel Tarullo, a Federal Reserve governor, comes as banks are putting up stiff resistance to new oversight and financial regulations — including at a private meeting Wednesday between Tarullo and the heads of Goldman Sachs, JPMorgan Chase and other Wall Street firms, according to the Fed.”
“Among the major new regulations that has been delayed is the Volcker Rule, which would seek to prevent banks from taking excessive risks by curtailing their ability to speculate with their own money — rather than on behalf of clients.”
Well, I can certainly understand why no one would want to rush into the Volker Rule, especially with JPMorgan Chase losing $2 billion in 45 days… actually fewer than 45 days.
I guess it’s really none of our business though, right? I mean, it’s not OUR bank. If JPMorgan Chase wants to take on the kind if risk involved in buying credit default swaps and the like, it’s on them. It’s not like we’re on the hook if they bankrupt themselves… right?
Please say I’m right…
Mandelman out.
"Unexpectedly"!
Looks like Goldman Sachs has the right perspective on first-quarter growth, although perhaps not the right amplitude. Earlier this week, GS warned investors that the Q1 GDP estimate would drop to 1.9% based on limited warehouse inventory expansion, but that the trade numbers for March might push it down even further. Today, the Commerce Department [...]
NACA stands for the Neighborhood Assistance Corporation of America; a nonprofit that provides “Home Save Counselors” to assist homeowners trying to get their mortgages modified. They put on really big shows at convention centers and have lines of homeowners waiting overnight… that sort of thing.
I’m not sure why, but meeting with a “Home Save Counselor” doesn’t make me feel like I’ll be talking with a commissioned salesperson who will be potentially making up to $1,000 on my loan modification case? A “Home Save Counselor” is on commission? What’s next? Does the nurse in the Emergency Room get a bonus if I get an MRI?
Well, according to a reader of mine who wrote to tell me that he or she had been working at NACA and, among other things he or she found objectionable, was the compensation structure… or, the commission plan would be a better way to phrase that.
Here’s what my reader, who shall remain anonymous, had to say after working as a NACA “Home Save Counselor” for almost a year…
The pay structure at NACA is unbelievable. They start you off at $12.00 and hour until you finish your training. You’re told that within four months you should have built your pipeline. Most of that pipeline consists of files transferred from those who have left the company’s employ.
After training ends, your hourly pay drops to $8.00 an hour and becomes a draw against future commissions, the thinking being that by this time you should be closing loans – YEAH RIGHT. The commissions could be anywhere from $750 to $1,000 – depending on the target (credit).
If you are licensed you get the 100% commission – if you’re not licensed you get only 80%, with the other 20% going to the mortgage consultant that pulls the bank application. I could never figure out what happens to the percentage that I would think would be given to the mortgage consultant that qualified the member initially.
The turnover rate is very high. And they don’t appear to care who leaves or stays – they profit either way. You can’t imagine how many mortgage consultants leave the company and never get that 80%.
And you have to re-pay what they call, “The Draw.” There are countless employees that owe NACA thousands of dollars, and are constantly fighting to receive their commissions.
Now, to begin with, I checked the NACA website and found they recruit for open positions right there. Here’s what it lists as desired experience, just in case you’re interested in becoming a NACA “Home Save Counselor.”
B. EXPERIENCE:
a. Counseling
b. Call Center
c. Loss Mitigation
d. Strong computer skills.
e. Community Involvement
f. Financial Services
g. Mortgage brokerage, origination, processing and/or counseling is preferred.
Well, I was glad to see that they, at least, did include “counseling” on the list. But, I can’t help but wonder how many people out there have a resume that looks like this:
“Mortgage brokers” who have worked for “financial services” companies…
Who have “loan origination” experience, having worked in a “call center”…
With strong desktop underwriting… no, that’s not right… I meant, “strong computer skills,” and know what the term “loss mitigation” means…
Who are also “counselors involved in their communities?”
I only ask because I’ve known quite a few people in my 50 years on this planet, and I’ve personally never even heard of a… “Computer literate involved community counseling mortgage broker with telemarketing and loan originating experience in the financial services industry,” have you?
Do they even make those?
“Hello, Central Casting? Yes, I’m looking for someone to play the part of a “Computer literate involved, community counseling mortgage broker with… CLICK. Hello? Hello?” Huh, we must have gotten cut off… don’t you just hate AT&T?
Come on… I was born at night, but not last night. Once you put “mortgage broker” on that list, you’re looking for a mortgage broker, right? You know any mortgage brokers with diverse skill sets that you’d consider “many and varied?”
Why don’t they just say they’re looking for a mortgage broker to work on commission and sell people on applying for loan modifications? They should let me write their ad on Craig’s List, I’d have the phone ringing off the hook.
Here’s what else it says on NACA’s website about working there…
“NACA staff have a passion for and commitment to community advocacy and the delivery of excellent services to working people.
The Home Save Counselor works directly with at-risk homeowners across the United States by providing comprehensive phone counseling. The Home Save process requires homeowners to complete information and submit documents through NACA’s website. The homeowner can obtain comprehensive counseling either face-to-face in a NACA office or by phone through the counseling center.
The Home Save Counselor should have experience with counseling, calculating income, budget preparation and traditional loss mitigation workouts. While NACA’s Home Save solutions are not the same as traditional workouts offered by lenders/servicers, we need those individuals skilled in traditional workouts so we may teach the Home Save process.
Home Save Counselors work from the Counseling Center and will be counseling homeowners over the phone. The Counseling Center is operating from 8:00 a.m. to 11:00 p.m. Employees work on two shifts. NACA, at its discretion, may change the shift hours. All Counselors may be required to work longer hours or additional days to accomplish the work. Some staff are provided the opportunity to participate in NACA’s Save-the-Dream events which occur throughout the country.”
Well, the long hours are no problem… they’re working on commission right? Commissioned sales people never mind working late as long as they’ve got “Ups” or “Leads” to “close on a loan mod deal,” after all they’ve got to cover their “nut” and “pay back their draw”.… is that about right for how I should be phrasing that?
It’s funny too because a few months ago my wife and I bought my daughter a new car for her birthday, and we both have such fond memories of the “Vehicle Attainment Counselor” we worked with at the VW dealership. Actually, by the time we left in our new car, he had also helped save our marriage and made me understand my inner feminine child… oh, shut up, shut up, shut up!
He was a car salesman, which was fine by us as we were looking to purchase a car. And I couldn’t pick him out of a line up today if there were prize money involved. I can, however, describe the car we bought… it’s a Jetta TDI, black and tan leather… sunroof… gorgeous.
“Counselors,” is that what we’re calling them now? How stupid do they think we are? I don’t have a stockbroker, I’ve got a “Monetary Separation Counselor,” is that the deal?
Look… I have wanted to like NACA ever since I started reading about how Bruce Marks was delivering old furniture to the front lawns of bank CEOs… he seemed like a guy after my own heart for a while. But all I ever hear from homeowners is that they went to a NACA Revival Show, and either nothing happened, or something bad did. It’s never a positive experience… never.
And now maybe I’ve discovered why… commissioned mortgage brokers masquerading as “counselors from the community,” making up to a grand for selling loan mods. You know, I’ve been wondering where all the mortgage brokers who used to sell loan mods went ever since the FTC’s and AG’s task forces started shutting them down a few years back, and the MARS rule pretty much put anyone out of business all over the country, if they weren’t already.
So, now I know… they’re at NACA… of course… why didn’t I think if that. I should have realized that they’d all end up as “counselors” at a nonprofit housing counseling agency largely funded by HUD or other tax dollars of mine. That is a truly lovely thought… now if you’ll excuse me I’m feeling some projectile vomiting coming on.
By the way, it’s not as if I’m the only one who feels this way about NACA… check this out…
Cleveland, Ohio — Homeowners should beware of an out-of-town housing assistance group that claims to help people get better mortgage terms, local foreclosure prevention groups say.
The groups — Empowering and Strengthening Ohio’s People, Neighborhood Housing Services of Greater Cleveland, Community Housing Solutions and the Cleveland Housing Network – issued a statement Wednesday against an event planned in late June, saying the sponsor jilted homeowners last time it came to town.
The Neighborhood Assistance Corporation of America, in Boston, has scheduled an event June 28-July 2 at Cleveland’s Public Auditorium. The organization held a similar event in June 2009 at Cleveland State University’s Wolstein Center.
“NACA claims to have the best homeownership and foreclosure prevention program in the nation,” the local group’s statement said. “But that is no consolation to the hundreds of homeowners who were jilted by the organization the last time they came to Cleveland.”
Bruce Marks, NACA’s founder and chief executive officer, said the local groups were threatened because his organization has serviced 650,000 clients nationwide.
“It is just petty organizational jealousy,” he said. “It should be about the homeowners.”
Yes, Bruce it should be about the homeowners, but you’re not exactly the one to be on that particular soap box, are you?
Can’t you just see an ex-mortgage broker telling some homeowner that they’ll get a principal reduction and all sorts of other garbage because he needs the commish to make his Benz payment on Friday? Close that loan mod, close that loan mod… good Lord.
Lou Tisler, executive director of Neighborhood Housing Services, said NACA staff assured many Northeast Ohio homeowners in 2009 that they would get mortgage modifications to keep them in their homes. Often, the “guarantee” didn’t materialize, and the homeowners ended up at the local agencies, he said. By then, months often had passed, making it more difficult to prevent homeowners from going into foreclosure, Tisler said.
“I have nothing against Bruce Marks,” Tisler said. “I have something against an organization coming in and building up expectations for people and then leaving town not making people whole.”
Yeah, I understand that sentiment… actually, no I don’t. See NACA is Bruce Marks. He set this thing up… made it too big to be competent, and now it’s causing homeowner harm and setting them up to be closed like they’re attending a time share presentation.
Oh, and there have been 19 complaints filed since 2007, as far as the Ohio Attorney General’s Office knows, and that includes the complaints relating to telephone solicitations and foreclosure counseling. Gee… so what does that tell us? Maybe it’s that fewer people complain when they aren’t paying anything for the service they didn’t receive? You think that could be it?
“Nineteen is a very, very small percentage given the number of people we’ve helped,” is how Bruce Marks responded, and he should try that argument out here with the State Bar or BBB. I know firms with fewer than 19 complaints over the last four years, and thousands of satisfied clients… and they have a D- with the BBB.
No matter anyway… the complaints did not result in any action against the group, and why would they? NACA’s a nonprofit with Home Save Counselors. Now, if they were just a traveling circus of a high-pressure sale show hawking loans and loan mods, well, that would be another matter, right?
Oh, shut the front door.
People, I don’t know what to tell you about whether you should go to NACA or not… but if it were me and I was going to check it out… I’d keep my wallet in my front pocket so it doesn’t get picked, and I’d be every bit as suspicious as when talking to any other kind of commissioned salesperson.
For the record, I tried sending a couple guys to one of the events once, but the NACA goons spotted them looking like they might be cognizant of their surroundings and they threw them out. It would seem that Mr. Marks doesn’t think his show is ready for prime time.
Too bad. I wouldn’t mind slamming a few seniors into some crummy mods in order to pick up a quick Ten Gs for this weekend. Come on, Bruce… I’d make one heck of a “counselor.” (Wink, wink.)
Mandelman out.
The International Monetary Fund (“IMF”), in its latest World Economic Outlook, stated quite clearly that mortgage write-downs, among other forms of debt forgiveness, can deliver significant economic benefits by substantially mitigating the negative impact of deleveraging on a nation’s economic activity.
The report points out that our recession is being driven by households forced to reduce their debt leading to reduced consumer spending, which in turn drives us deeper into recession.
Daniel Leigh, the report’s author, made the concept simple for anyone, except perhaps Ed DeMarco of the FHFA, to understand…
“Because debt is acting as a brake on economic growth, it is important to unstick the brake.”
I love this guy… he’s like the Forrest Gump of the economics set. Now get this…
“The IMF has studied the response of a number of countries to situations where large parts of the population are burdened with high mortgage debt in a recession, and finds that such programs can help prevent self-reinforcing cycles of falling house prices and lower aggregate demand.”
That sounds suspiciously familiar… which country would fall into that category? Oh yeah… ours. The report’s conclusions go on to give me goose bumps…
“Such policies are particularly relevant for economies with limited scope for expansionary macroeconomic policies and in which the financial sector has already received government support.”
The report focused in on the household debt reduction program implemented in the U.S. during the 1930′s… and in Iceland in our current crisis, which it said can…
“… significantly reduce the number of household defaults and foreclosures and substantially reduce debt repayment burdens.”
The report also contrasted those successes with examples of failures to effectively deal with the fallout of an economic crisis… “such as the current response to the crisis in the U.S.”
Oh, dear Lord people… what do we need a ton of bricks to fall on our heads? Because if we keep doing what we’ve been doing to-date, that’s at least metaphorically exactly what is going to happen.
The report also said that programs must be designed with incentives for BOTH banks and borrowers to participate, “notably by offering a viable alternative to default and foreclosure.”
The IMF also pointed out that…
“The friction caused by such redistribution may be one reason why such policies have rarely been used in the past, except when the magnitude of the problem was substantial and the ensuing social and political pressures considerable.”
I’m starting to feel a little nauseous over here… is any of this ringing any bells for anyone? Who is it that keeps talking about the need for…considerable social and political pressures? Me, right?
The report also cited a study which found that, “political systems tend to become more polarized in the wake of financial crises,” and as a result led to problems generating collective actions… like DOERS, comes to mind. Specifically, the report said that, “distressed mortgage borrowers may be less politically organized than banks – and this can hamper efforts to implement household debt restructuring.”
I think I’m going to need to lie down soon… but first I think I’ll go out to my driveway and slam my hand in my car door… in an effort to make the pain go away.
Join me in the Way Back Machine…
It’s the U.S. during The Great Depression of the 1930′s and FDR has just introduced the Home Owners Loan Corporation or HOLC.
HOLC will be using government bonds that offer federal guarantees on principal and interest to buy up distressed mortgages from banks. The purchases will represent 8.4 percent of our country’s GDP in 1933.
HOLC will then be restructuring these mortgages to make them more affordable to homeowners. The result will be that 80 percent of these restructured loans, roughly 800,000, will be protected from foreclosure.
Primarily, HOLC will extend the term of the mortgages, in some cases doubling the term, and converting the loans from variable to fixed rate loans, but HOLC also wrote off principal in many instances so that no loans exceeded 80 percent of the current appraised value.
Over the next twenty years or so these mortgages will be sold and the government will even make a profit by the time the program ends in 1951.
Referring to the HOLC program, the IMF’s report said…
“A key feature of the HOLC was the effective transfer of funds to credit constrained households with distressed balance sheets and a high marginal propensity to consume, which mitigated the negative effects on aggregate demand, which was caused by the recession and need for household deleveraging.”
In other words, it worked. Well, I’ll be Bernanke’s Uncle. Isn’t Ben supposed to be an expert on The Great Depression? I could have sworn…
But wait… there’s more…
Apparently, this year Iceland has been forgiving mortgage debt for its citizens in an effort to stimulate economic growth and guess what?
It’s working there too!
The Icelandic government and the reconstructed Icelandic banks worked together to develop, “a template to be used in case by case restructuring discussions between borrowers and lenders.”
“The templates facilitated substantial debt write-downs designed to align secured debt with the supporting collateral,” or in other words, reduce the loan in line with the current value of the home, and make sure that the terms are such that the homeowner has the ability to repay the loan.
Brilliant! What are they putting in their Cheerios over there? We need some, whatever it is.
“The IMF found that such case by case negotiations safeguard property rights and reduced moral hazard.”
No kidding. Do tell.
Then only problem was that the process was time consuming because as of January of this year, only 35 percent of the restructuring applications were processed. Here in the U.S. we’ve been knocking our politically divided heads against the wall for four years now, and we’re nowhere close to having processed 35 percent of anything.
But, Iceland is obviously a country with advanced critical thinking skills, likely the result of not having CNBC or Fox News channels, so it has introduced a debt forgiveness plan which writes down seriously underwater mortgages to 110 percent of the current value of the given property.
Iceland’s officials did say that before debt write-downs really took off, it took the announcement of “… a comprehensive framework and clear expiration date for relief measure.”
See, that leaves the U.S. out, right there. Name one thing we’ve done since 2006 that you’d describe as being either comprehensive or clear? Go ahead… I’m waiting. Okay, I’ll make it even easier… what have we done that’s been somewhat comprehensive and reasonably clear?
Right… that’s what I thought you’d say. The only way we’ll be able to make this Iceland strategy work over here is if we can succeed by developing something that’s “narrow and muddy.” Comprehensive and clear seem entirely out of reach for us.
So… how’s it going, Ice, Ice Baby?
“As of January 2012, 15 to 20 percent of all Icelandic mortgages have been or are in the process of being written down.”
Of course, as an intuitive economist once said, and I’m paraphrasing here…
“If you want to create the much-admired Danish model, you’re going to need some Danes.”
Iceland’s mortgage write-down program happened as a result of thousands of its citizens taking to the streets demanding that something be done about the debts the people had incurred buying homes during the bubble at what turned out to be wildly inflated prices. At one point, they surrounded the country’s parliament building and started throwing rocks.
(And people laughed at me last year when I suggested that we form a group called, “People in Favor of Hitting Politicians with Sticks,” or PIFOHPWS… for short.)
Of course, in our country, there’s no way that would ever happen because we’re all way too ashamed to be seen on CNN in what would be called, “The March of the Deadbeats.” Which is why I suggested the DOERS idea… stay home, send emails and other clever things through the mail. Occupy without leaving your house, if you will.
Even though, you would think that by now more people would be figuring out that if home values fall by 60 percent or more… and unemployment soars past the 20 percent mark… there are going to be an awful lot of people that may look, “irresponsible,” but are purely innocent victims of a global credit crisis.
Are you listening, Rick Santelli, you odious, insufferable, unenlightened and ill-bred jackass? I doubt it. I think it’s abundantly clear that you haven’t been able to listen to anything but the droning that goes on incessantly between your pinned back ears.
So, how come the whole debt forgiveness thing is working so well over in Iceland, but if the issue even comes up for discussion over here, we can’t stop a parade of badly behaved adult children from whining about how they’re paying their mortgage payments and therefore would rather see the country mired in a 40-year economic funk than lift a finger that could potentially benefit someone who took out a second to remodel a bathroom?
Who are these people, and more to the point, who are their parents? Because when the revolution comes, I’m taking them out first. Our new society simply cannot be allowed to start with their sort of genetic defect. Or, like the man said… you can’t fix stupid or petty.
Brendan Keenan, writing in the Independent.ie, had the following to say on the topic of the Iceland debt forgiveness strategy…
“It will probably be necessary in the end to do something of the kind in this country, but any government trying should tread very, very warily. We may not be Greeks, but nor are we Icelanders.”
That’s true… but what are we in the eyes of the rest of the world these days?
A spoiled, drunk 15 year-old waving a gun in their face?
Mandelman out.
Well, here we go. In our race to the bottom… our attempt to see how far we can push it before we break something… our desire to see chaos American style… ABC News reported yesterday that at least seven locations in Manhattan, “primarily Wells Fargo Banks,” according to the story, received envelopes in the mail containing “suspicious white powder,” police officials said.
Well, thank heaven it wasn’t the non-suspicious form of white powder… you know, the kind we’re all used to getting in our mail every day.
The message that arrived in the envelopes read as follows:
“This is a reminder that you are not in control. Just in case you needed a little incentive to stop working we have a little surprise for you. Think fast you have seconds.”
AP reported that the powder in the envelopes caused evacuations at bank branches, but no injuries, as if that last part mattered in the least. Idiots appear to be happy that the powder was found to be cornstarch… as opposed to Anthrax, I suppose.
Gee, now that’s certainly a relief. Whew, I guess we dodged a bullet there, didn’t we?
Manhattan police, about ready to round up the usual suspects and get a rope, initially suggested based on absolutely nothing that the envelopes could have been mailed by “militants from within the Occupy Wall Street movement.”
Luckily, a spokesperson for Occupy Wall Street denied any connection to the mailings… and that seemed to accomplish what exactly? I guess the NYPD said, “Oh, okay… sorry about accusing you guys of potentially mailing Anthrax to banks in Manhattan? Our bad.”
The police say they thought that Wells Fargo was the target of the mailings because it’s based in San Francisco, and what they described as “about half of a key dozen Occupy Wall Street members have backgrounds in Oakland, San Francisco and Berkeley… and SIMILAR INCIDENTS OCCURRED IN CALIFORNIA EARLIER THIS WEEK, police sources said.”
“A key dozen Occupy Wall Street members?” So, now there are probably a few hundred who are convinced that phrase was referring to them… perfect. And what exactly was similar about the incidents that occurred in California that no one seems to have heard anything about until now? Was it the cornstarch… the mailings… the scary message inside? How similar were these events exactly and why were they mentioned before now?
Another theory I just made up is that Wells Fargo was targeted because it’s stage coach logo is reminiscent of the old West, when Native Americans were the victims of genocide, so the FBI is said to be investigating Indian casinos in several states.
What? My theory makes every bit as much sense as theirs does.
Others on the list of potential suspects include any number of the 8 million Americans whose lives have been destroyed by the foreclosure crisis, or any of the hundred million or so that are beyond pissed over bailing out banks with trillions while leaving the country’s working class to die on the proverbial vine.
Or the commies, it could always be the commies. And let’s not forget the Jews, al-Qaeda, ex-military wackos, or a prankish band of Ivy League college students, saddled by student loans and out to have some fun. Or foreigners, don’t forget foreigners.
In other words, police had no idea whatsoever who sent the mailings.
Embarrassingly, ABC reported that the Manhattan mailings, “mainly appear to have reached low-level workers.” And New York police spokesman Deputy Commissioner Paul Browne incoherently blathered to ABC News:
“Apparently, the message was aimed at the mail room workers among the 99 percent.”
The police are saying that the mailings were intended for May Day delivery, but arrived a day early. One official, according to ABC News, inexplicably said…
”They underestimated the efficiency of the U.S. Postal Service.”
Ha! So, the joke’s really on them after all, right? Didn’t think the USPS could foil your plans with their efficient inner city delivery, now did you? Ha! So there.
I’m reporting, however, that regardless of who the mailings appear to have reached, senior executive seat cushions at Wells Fargo and other banks are all being replaced today after being soiled as the news of the mailings and their enclosed powdery substance spread through the executive ranks.
I’m also reporting that I have instructed my wife and daughter not to go inside the bank for any reason, and instead only use the ATM after hours. And I’m not kidding about that in the least.
No one should be the least bit surprised that this is happening, and it’s nothing to take lightly or brush off as nothing to be worried about… it’s scary as all hell because it’s a certainty, in my opinion, that it’s only a matter of time before people are killed in one way or the other as a result of what this country has allowed to happen to untold millions.
“This is a reminder that you are not in control. Just in case you needed a little incentive to stop working we have a little surprise for you. Think fast you have seconds.”
There’s a word for that sort of message, it’s “terrorism.” And it can strike without warning and claim the lives of thousands… and there’s no way to stop it, and no one who cares about being punished for it after the fact.
The Oklahoma City bombing, April 19, 1995, claimed 168 lives, including 19 children under the age of 6 years old. More than 680 were injured. The bomb destroyed or damaged 324 buildings in a 16-block radius, destroyed or burned 86 cars, and shattered glass in 258 buildings nearby.
Timothy McVeigh believed that the bombing had a positive impact on government policy. And what angered him then is nothing compared to the potential for rage that exists today.
During the 1930s, after the attack and attempted lynching of a judge (who was signing eviction orders) by 200 Iowa farmers who stormed into Judge Bradley’s courtroom in April 1933, the Governor of Iowa placed the state under martial law.
In Minnesota, similar degrees of civil unrest and the threat of violence led Chief Justice Hughes to declare a moratorium on foreclosures.
Expressing frank understanding that the nation’s economic catastrophe threatened political stability, Hughes remarked, “the policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile.”
Hughes found that the mortgage crisis in Minnesota justified the stay of “immediate and literal enforcement of contractual obligations” insofar as the emergency was real and no mere legislative subterfuge; the statute was designed for the benefit of society as a whole rather than particular individuals; and the legislation was temporary and no broader than necessary to accomplish its purpose. Hughes also denied that the statute violated due process or equal protection.
A foreclosure moratorium is not what we need… it is a last resort.
What we need is a fairer and more compassionate process through which we can get through the foreclosure crisis. The way in which foreclosures have been handled to-date has been wrong to the point of being barbaric, and we will continue to deny and ignore this truth at our peril.
Mandelman out.
In Hollywood movies, we’ve been introduced to villains that have real game. In the Harry Potter films, for example, there’s “Voldermort… The Dark Lord… He Who Shoud Not Be Named.” In the movie, “Star Wars,” we were introduced to the infamous and intergalactic, “Darth Vader.” And few will ever forget “Dr. Hannibal Lecture,” telling Clarice that he was “having an old friend over for dinner,” in “The Silence of the Lambs.”
Most everyone, I would think, has at one time or another, seen a “James Bond” movie, maybe it was “Goldfinger,” a story with a villain whose elaborate plan to use nerve gas to rob Fort Knox and ultimately steal the world’s gold, was first released in 1964. Or perhaps it was, “Live and Let Die,” in which a villain attempts to hatch an ingenious scheme to addict the world’s population to heroin, after seizing control of the drug’s world-wide production and distribution.
In real life, we’ve never had to worry about such evil actually destroying our world, because throughout our collective history, we’ve never seen a villain show up with that kind of game.
Adolf Hitler was looking somewhat promising for a few years during the 1930s, but after the Battle of Stalingrad ended in a disaster for the German troops in the early part of 1943, he was little more than a screaming lunatic with bad hair and genocidal tendencies. We’ve had our share of “empires” that for a time, appeared capable of dominating our planet, but regardless of whether we’re talking Roman, Ottoman or British… they all ultimately fell like flan.
And, although I realize that at the moment, we’re very concerned about our TBTF financial institutions having the power to destroy our nation forever, it occurs to me that it’s probably not the case, even if it does seem like it at certain moments. As far as our corporate dynasties go, if history is any sort of guide, they’ve proven to have shorter lifespans that some MLB player careers.
Don’t get me wrong, I’m not at all happy about how our government seems set on providing us with tangible evidence of its ineffectiveness on at least a monthly basis. But, it does remind me that it’s at least reasonably likely that the TBTF problem will be overwhelmed by the general incompetence of man, long before it destroys our world or way of life.
Like, it’s not at all inconceivable that five years from now we could be laughing at how we were so worried about Goldman Sachs… before the investment-bank-turned-bank-holding-company in 2008, quietly filed for bankruptcy in 2015. Remember Lloyd Blankfein, someone would say? And someone else would reply, “Was he the bald one?”
I can remember when the Vietnam War was never going to end… and then it did. I can recall a time when drugs were sure to be on the verge of destroying our country’s youth, and then they didn’t. Without an Equal Rights Amendment we would never survive as a great nation, or maybe we would. Our hostages would all die in Iran, unless they wouldn’t. And the crash of ’87, which soon morphed into the S&L crisis, was reported so severely at the time, that I never even questioned but that it would be my grandchildren that would be worrying about paying its astronomical bill… until that wasn’t the case anymore.
After that, the Internet was going to change absolutely everything… even replacing our old economy with a “new one,” or not. AOL bought Time Warner… for a year. And Enron was the corporate Titanic, that along with Tyco, HealthSouth, Adelphia, WorldCom, Arthur Andersen and a myriad of others, had led us to Sarbanes Oxley, a bill that was sure to signal the end of American business… until it didn’t.
Years ago, the Sears Catalog was a permanent institution in this country, and so was the airline, TWA… and bicycle maker, Schwinn… or camera-maker, Polaroid… and we bought albums, 8-tracks and CDs, but always at Tower Records. And yet they’re all gone today.
Remember when we might not survive Y2K, and when the president said he didn’t have sexual relations with that woman, and when Larry Craig said he had a wide stance, and when we knew there were weapons of mass destruction… even though we didn’t know for sure, but it didn’t matter because that’s not why we went into Iraq anyway, and besides al-Qaeda had cells around the world that would end our lives soon enough anyway?
Remember when Wall Street had investment banks on it, and Fannie Mae and Freddie Mac stood for fairness? When membership had its privileges, when the Catholic Church and Penn State were both safe places for boys to be, when you could press five to increase your credit limit and there were things called usury laws that made charging more than a certain amount of interest illegal?
I still remember when there was an impenetrable Iron curtain across Europe, and on its other side lived the people who wanted to kill us with their collective thinking. They’re gone now, replaced by a smaller, nuttier guy in a Members Only jacket that makes him much harder to fear.
I can remember when none of those things were thought of as fleeting… like the blips on an ever-changing landscape that time would flip, shake and erase like an Etch-a-Sketch whenever we turned our backs to enjoy a moment.
The Worst Economic Crisis Since the Great Depression…
We are now six years since the end of a real estate boom that was only around for some four years anyway, and we’re going on four years since Hank Paulson said that he needed $700 billion in unmarked small bills by morning or our gig would be up.
Since then, we’ve all watched as Secretary Geithner… his trusted ward, Lawrence of Summers, and the Professor sans MaryAnn, all ran about shoveling trillions around Wall Street, while engaging in crazy tea party inspired chatter about how, as far as U.S. homeowners were concerned, there was too much “moral hazard” involved to consider offering them any real help.
Obviously, their thinking was that by bailing out the deadbeats who borrowed the money for houses that they had now lost trillions on, collectively speaking, they would rush out and do the same thing again thinking they’d be bailed out again. And don’t laugh… that’s pretty much what they thought… and still think for that matter.
So, the announcement went out across the land in so many words. For America’s homeowners… the beatings would continue. And so they have.
The Rich Getting Richer…
About a week ago, a study showed that 93 percent of the gains since President Obama took office went to the top one percent.
By anyone’s standards, that statistic is alarming… no one can be in favor of that continuing, not even the top one percent. It’s not like it’s debatable to say that enormous income disparity between rich and poor is a problem in any society.
The question, I suppose, is whether all that’s occurred since 2007 has been part of some nefarious plot perpetrated by evil villains that might have starred in a James Bond movie, or whether the guys in charge have simply been wrong… you know, handled things badly.
Well, I think the picture is becoming ever clearer that what we have are over-confident leaders who think certain things based on what they’ve been taught and learned in the past… but they’re wrong. What they view as precedent isn’t applicable to the economic situation we’re facing today.
It’s not like the administration wouldn’t have preferred to have created more jobs and stopped more foreclosures, right?
To those in charge it’s a duck because it looks like a duck, walks like a duck and talks like a duck… but it isn’t a duck… it’s a goose, and a flightless one at that. In the parlance of business books, it’s a “black swan.”
The Geithner/Summers/Bernanke clan believed (and continue to delude themselves into believing) that by pumping trillions into the financial system and into the TBTF banks, two things would result:
The funny thing is… and by funny I mean inconceivably sad… that you could argue that neither outcome materialized, or you could say that the first objective was achieved, in an accounting-rules-don’t-matter sort of way. But, no one could argue that the second goal was reached in the least.
Basically, Geithner and Bernanke thought that lowering rates pumping liquidity into the financial system would stimulate growth because it has in the past. They sacrificed homeowners thinking that once the financial system was stable again, the rest of the economy would be pulled out by the health of the financial system.
So, here we are… the growth they counted on failed to materialize, as I’m sure they would phrase it, but of course what truly failed to materialize were their critical thinking skills because there was no chance that their plan was going to work in terms of creating real growth.
It’s simple really.
There are fewer of us working, so we’re producing less and therefore we’re earning less… and so we’re spending less. And that means we’re paying less in taxes to both state and federal coffers, which means the states are spending less, and lower state spending means reduced GDP… do you see the dynamic at work here?
Take a quick peek at what’s happening in Spain today and you’ll see clearly the fallacious nature of banker-think.
Unemployment in Spain is now 25 percent… among the country’s youth, it’s 50 percent, but the European banks to which Spain owes money are demanding that Spain reduce its deficit spending by 5.5 percent over the next two years. Now guess why.
They want Spain to do that so that the country will have enough money to make its payments to the bankers of course.
But, you might ask… if Spain reduces its GDP by 5.5 percent over the next two years, which is the same as reducing its spending by 5.5 percent, won’t that cause unemployment to rise even higher?
Well, of course it will… and very well done there indeed.
And if the country’s unemployment goes even higher, won’t that reduce the country’s GDP, as fewer people will be working, and won’t that also reduce the revenues that go into the country’s coffers?
Yes, that’s right again!
But, won’t fewer people working result in property values falling even further causing more people to go underwater and into foreclosure driven by fewer able or ready to buy homes?
Very good, right yet again. This is so exciting…
And if property values fall, and more people default, won’t that cause further harm to the Spanish banks that made the loans that are increasingly defaulting?
Yes, yes, yes… keep going…
Well, the more the Spanish banks lose as a result of property values falling, and while unemployment rises, the less credit the banks will provide, and won’t that also reduce GDP even further?
I think you’ve got it… now bring it all home for me…
… and won’t all of that combined actually reduce the amounts that Spain will have to make payments to the central and EU bankers who are the ones demanding the 5.5 percent reduction in government spending in the first place?
Thank you, Lord! Why yes, I would have to say that would be the case.
Do you see ANY OTHER OUTCOME that was POSSIBLE?
Please… take your time… the answer is NO, NO, NO.
So, why are the EU bankers doing this? Isn’t it stupid?
Yep. It’s stupid.
So, why are they doing it? Are they evil? Do they have a nefarious plan?
No, it’s just stupid. But the EU bankers are just like Geithner, Summers and Bernanke, they are forecasting Spain to have GDP growth this coming year because they are being bailed out.
But the bailout funds are only to repay the EU bankers that are lending them in the first place.
That’s correct.
So, how can Spain grow its GDP as bankers are forecasting they will?
We already covered this point… THEY CAN’T… and wont.
And we’re doing the same thing here at home, the only difference being we can print money… or rather the Federal Reserve can… and then it can lend it to us and charge us interest, albeit a small amount of interest… it’s still interest.
That printing and lending to the U.S. government machine is what gets called “quantitative easing,” or a “twist,” or whatever new not-in-the-Scrabble-dictionary type word they come up with next. It has a tendency to prop up the stock market, which is why the rich are getting richer as the rest of us die on the proverbial vine.
And just like the EU bankers, Geithner and Bernanke are forecasting GDP growth once again for the U.S. but once again none of us will feel it because we’re not rich and making trillions as the stock market remains artificially propped up by the Fed’s money creation and lending scheme.
The best part is that, all the while, foreclosures will accelerate and continue unabated… actually much faster than before, now that the banks have their settlement and to large degree can’t be prosecuted for their foreclosure related improprieties… not that such prosecutions were going on anyway.
The European bankers are no different than is the FHFA, which is led by Ed DeMarco, the guy stopping Fannie and Freddie from reducing principal balances of mortgages. He says he won’t do it because his job is to return Fannie and Freddie to profitability, and all that means is that in his forecasts… even if principal is not reduced… we’ll all still pay off the debts, or at least enough of us will that it’s not worth writing down the amounts owed.
Translation: He’s forecasting growth in future years, just as the European bankers are for Spain and elsewhere. He’s wrong, and so are they. He won’t share his assumptions used in his forecasts, but if he was forecasting that more and more will default if principals aren’t reduced, then he’d be concluding that they should be.
So, you might ask… what should we do?
Well, for one thing, I’d suggest yelling out: “Look out below! We’re coming down… and coming down fast,” in order to avoid hurting those below us on the economic ladder… you know, the poorer people.
It’s not that they can actually do anything to get out of the way, so they’ll still get crushed by our fall, but I still think it’s rude not to yell. “Look out below!”
But, that wasn’t my point…
What I wanted to say is that we shouldn’t despair. We should keep up and even intensify the fight because if you understood what’s going on, then one thing should be clear…
They’re not evil… they’re wrong. And we can know they’re not evil, because they’re simply not smart enough to be evil.
Mandelman out.
Manhattan is where the trendy chic food trends begin, for the most part, right? It has always seemed that way to me anyway, although I think LA may be able to take most of the credit for strip mall sushi, and Mexican fare.
Every time I’m in NYC, it seems that someone always suggests dining at some new kind of restaurant that until that moment, I didn’t really know existed. It’s always good in some ways, but it’s never the kind of food of which anyone takes large bites, and I can’t tell you how many times I’ve gone out for spaghetti and meatballs after dinner and goodnight.
I was in the city on business some years ago, dining with the CEO of an international conglomerate type of company who had wanted to dine at what looked to be a Chinese restaurant, but was supposedly representative of some far out province near the Mongolian border where yak was a delicacy, or whatever.
I’ll never forget it because he ordered the unbelievably expensive Bird Nest Soup for the table… if memory serves it was about $600 for maybe eight of us… and I am not making this up, you can ask someone else or look it up online. As I was blowing on a spoonful wondering how I was going to get out of this gracefully… he leaned over to tell me what a delicacy it was because, he said in a hushed tone, it was made with “real bird spit.”
“WHAT?” Unexpectedly taken aback for a moment, I had inadvertently blurted it out much louder than I would have liked. Not really noticing my reaction in any detail, he only repeated himself.
“Oh,” I said. “Real bird s-p-i-t… got it…wow, that is amazing. I thought you said… “
Spoon in hand, he had returned to focus on the contents of the ornate blue and white lacquered soup bowl in front of him. “Never mind,” I mumbled almost to myself.
Real bird spit, while considerably more palatable than its misheard alternative, was still not doing much for me. I remembered that I once had pretty much gagged on a spoonful of egg-drop soup that my daughter ordered and insisted that I try. And I figured that if I didn’t like egg in my soup, it seemed unlikely that I would end having a taste for a soup made from the nest in which the egg could have been laid.
And besides… REAL bird spit? As opposed to what, perhaps? Was there a company manufacturing fake bird spit and passing it off in cans as being the real thing to chefs in Mongolia? That was only my first thought on the subject. My second thought was that, although I detested that stuff referred to as imitation crabmeat, it was quite possible that bird spit would prove to be one of the few things in the world that given the choice, I’d probably just as soon opt for the fake one.
I peered into my spoon’s contents noticing the soup’s undeniable spit-like texture, and then as I watched him slurp it down like it was Campbell’s Chicken Noodle, I pretended it was still a bit too hot and returned my spoon to the bowl. Recognizing that a diversion was going to be needed, I simply waited a minute before knocking my water glass over and in the flurry of apologies and confusion, fed my bird’s nest soup to the oriental carpet. “Mmmm…” I said a few minutes later. Delicious,” and thankfully no was the wiser.
But, it was far too close a call and I made a mental note to do more to avoid getting pinned down in such dicey dining situations. I had learned this lesson before too… people with the means to eat absolutely anything are often drawn to really primitive peasant food and you have to watch them carefully or you could end up having to make a run for the relative privacy of a restaurant’s back alley in order to heave beyond the purview of the other guests.
I was in Helsinki some years ago for a couple of weeks and in case you get the chance to visit Finland… my knee-jerk response would be to yell out… No, don’t do it!
For one thing it never gets dark there so you can have the front desk book your tee time at midnight. But trust me on this, golf is frustrating enough during the hours in which it’s normally played. No one needs to be teeing off straight into the wind on a narrow 200-yard Par 3 with water on both sides at 3:15 AM, especially right after some 6’6” chick with blond hair and unusually muscular forearms named Maijuska, just opened your seventh beer at the turn.
For another, never attempt to spend time in a country where they have street names that make use of the letter ‘N’ five times, three of which being consecutive. Just try finding “Uudenmaankatu Ullanlinna,” after a couple shots of vodka at the hotel bar. Actually, it’s not that hard… it’s just past the intersection of Hietassaarenkuja and Porvoonk and if you hit Teollisuuskatu, you’ve gone too far. If you rent a car, you’re all but certain to be killed in a rear end collision as you attempt to decipher enough of the data involved in the decision of turning one way or the other.
I was there at a conference of the World Health Organization, my father’s doing, not mine, and so we were attending these hoity dinners at which I can only assume the academics and government officials had simply eaten everything the world had to offer and so were being fed things that the rest of us would likely view as “experimental” before we’d identify with it as food we might want to eat.
I remember breakfast vividly, for the most part, it was always a herring buffet… all different kinds of herring prepared in every conceivable way, although some of which I’m certain I would never have been able to conceive. And if you’re thinking that the problem was that herring alone isn’t all that filling, don’t worry… that was not the problem, and it was all the herring you could eat.
With that as breakfast fare, it was barely a surprise to find out that these world-renowned intellectuals with means eat porridge for dinner, but we’re not talking about Cream of Wheat with brown sugar, in this porridge there was invariably either reindeer or blood sausage involved.
I’d offer to describe its taste, but for 10 straight days, I consumed only two foods and one drink: 1. Boxes of what appeared to be the Finnish equivalent of Lorna Doones. 2. Very large bowls of Beluga and Osetra caviar on toast points with a squeeze of lemon and chased by innumerable ice-cold shots of Finnish vodka.
After that, while traveling in the Baltic, First Class on a cruise ship headed for St. Petersburg, I quickly discovered that I was unable to come within six feet of a huge vat sitting right in the middle of the breakfast buffet table every morning. I was told that it contained oatmeal, but I knew they were lying because although I will readily concede that “oatmeal” can spoil… it doesn’t die. And there was no question in my mind that whatever was now inside that giant vat, it had not walked among living creatures for many years.
So, you’d think that I’d have learned my lesson after all these years, but the last time I was in Manhattan someone said, “Hey, let’s go have Ethiopian food,” and inexplicably, I replied saying, “Okay, sounds good.” I heard myself say it… wanted to take it back, but it was too late, my host was already into telling me how much I was sure to love it.
Ethiopian food? Really? To my ears, it sounded like “jumbo shrimp.” I thought food in Ethiopia was at least somewhat a rarity… maybe not compared with Chad or Somalia, but up against Tribeca or the East Village, for sure.
Twenty years ago the epicurean daredevils would have been touting “Sushi,” which today, I admittedly find delicious, but that doesn’t change the fact that a country’s cuisine made up of small pieces of raw fish could only develop in a country where you can’t afford a whole fish per person and you lack the electricity or gas to allow most people to own stoves. If you have the yen, you order up a filet at Morton’s way before you develop a diet based on bite size pieces of raw fish… and rice.
And it makes sense to me because Japan is a rock about the size of New Jersey in the middle of the ocean; only one-seventh of the rock is arable… and historically speaking, the land nearby is generally jam packed with marauding hordes of one kind or another. Much safer if you learn to feed the people on your rock without anyone having to leave it, no question about it. So, rice and small pieces of raw fish rules the day, and I completely understand.
Another example is found in the tortillas with which so many Americans have become enamored. I mean, they’re fine for holding whatever you put inside them, as long as it’s beans, rice, and some kind of meat, and the whole thing will taste great given sufficient amounts of salsa, guacamole and sour cream, which is the same sort of principle under which some consider snails to be a delicacy, just replace the condiments with garlic and butter. Actually, I’ve often thought that I might be able to eat most of an economy car, given copious amounts of garlic and butter.
But tortillas couldn’t have been everything their inventors were striving for, right? They had to be the result of people not being able to afford whatever they needed to make bread. They weren’t anyone’s first choice. Like they got sick of eating so much bread that they switched to tortillas? I seriously doubt that. Every time I hear someone ask, “Flour or corn?” I can’t help but think to myself, “Paper or plastic?” I mean, who cares?
How about this for an answer: Whichever promises to most significantly reduce the probability of food inside ending up in my lap. With that in mind, you make the call.
Just like matzo, for the Jews in the audience, which was also no one’s recipe, but rather is the sort of outcome possible when a bunch of slaves, on their way to a 40-year trek in the Sinai Desert, unexpectedly have to leave town in a hurry. Why we have to relive the outcome of planning so poorly thousands of years after the event is beyond me. I mean, come on already… let my people go.
And don’t start with that “tradition” nonsense. I don’t need a Tevya in my life unless he’s being played by Zero Mostel, capisce?
You don’t see any Jews volunteering to wander around for extended periods in the desert for tradition’s sake, do you? Not a chance. The closest thing to that you’ll ever see from today’s Jews occurs when Walter Annenberg and his wife spend a week or two at their place in Rancho Mirage.
No one WANTS to eat matzo, which is why even Jews only consider doing it over the course of maybe a week a year. I somehow manage to choke down half a sheet sheet of the stuff annually, but only if I can find the Egg & Onion flavor and slather it in butter and salt, which is basically the same sort of scenario under which I would be willing to eat shirt cardboard.
And, by the way, eating matzo without some sort of liquid within reach kills more people each year than any other food except improperly prepared blow fish.
Matzo was simply the best the Jews could do in a pinch. If you don’t have a pharaoh on your tail who’s bent on exterminating your entire clan, and there isn’t a guy named Moses running from hut to hut yelling, “Let’s go, for Christ’s sake,” then you let the bread rise and leave the following day.
So anyway, that’s what we did… we went out for Ethiopian food, which I soon learned is not all that far from what I expected would be the cuisine of a poor African nation that, for most of my life, was at war with neighboring Eritrea. And, why a country plagued by drought would attempt to develop an economy based almost exclusively on agriculture is one of those head scratchers for smarter minds than mine.
Didn’t they learn anything from Las Vegas? I know they know about Vegas because half the cab drivers in Vegas are either from Ethiopia or Eritrea, so you’d think that by now someone would have sent a postcard home with a few tips, at the very least.
Or maybe it’s that, “what happens in Vegas stays in Vegas,” thing at work. (Okay, I apologize for that. It was entirely uncalled for and just plain wrong. You have my word that it won’t happen again.)
So, after being seated at a table for four, the six of us perused the menu in complete silence until it was awkward. And just my luck, our waiter, who was a dead-ringer for Ziggy Marley, approached my side of the table first, saying…
“Are you ready to order, Mon?”
“Yes. I think I’ll have three small bowls of paste and a basket of sandy sponges.”
“Very good, sir. What color pastes would you like?”
“Hmm… let’s stay with Earth-tones… oh, and nothing purple,” the last thought having been inspired at the last moment as a table nearby received its order as I was finishing mine.
“Great, and to drink?”
“Let’s see… which do you recommend… the Desert Brush Tea or the Clay-aide? Never mind, I think I’ll have the tea.” The waiter had already turned his attention to the next order but when I mumbled under my breath, “I drank too much clay last night,” he turned back to me. “I’m sorry, did you want to change something?”
“No, I’m fine,” I replied. “Absolutely perfect.” Great, I thought. Now he’d probably spit in my tea before bringing it to the table. I started imagining that I was Larry David in an episode of “Curb Your Enthusiasm.”
Our host loved his meal. You could tell that he was literally enthralled by the overly cultural experience… he even knew how to pronounce his selection, although I decided not to ask him to translate it, even though I was 90 percent sure that he didn’t order goat entrails, so it probably would have been fine if he did. At moments like that, I guess I just figure… why tempt fate, if you know what I mean.
So, would you like to know how I liked my Ethiopian meal? I’ll tell you… it made me want to starve to death. I hadn’t realized it before, but the occurrence of starvation in Ethiopia is probably a choice in many instances… people just can’t face another bowl of paste and sponges. The country’s slogan could easily be changed to read…
As I sat there, at first strategically moving my food around on my plate, and then generously offering everyone at our table and even those seated close by the opportunity to try what I had ordered, describing its taste like someone hosting an infomercial, I could tell that Ethiopian food was so 2010.
It had shown the world the many ways that sand, clay and brush could be transformed into dishes with varying amounts of moistness… some merely damp, others entirely soupy. And now there would be something new… something with even less appeal than eating what falls on the floor of the African continent.
These multicolored pastes and play-doughs, it occurred to me, had been brought from the Horn of Africa to Manhattan for no discernable reason other than to provide upscale foodies a taste of what it feels like to be malnourished. I decided that I would endeavor to impress my friends back in L.A. by finding out which country’s cuisine was likely to become the next trendy eatery for the recession-proof, restaurant addicted segment of our population before I left town.
I asked around… nothing. I tried the Zabar’s shoppers, and still… no ideas. Then, I figured that maybe the best way to find America’s next trendy dining experience might be to check the other countries where starvation has traditionally flourished. Would there be restaurants serving food from Darfur or Somalia, for example?
Doesn’t it just figure that in this country, where we have so much food we that throw away inconceivable amounts on an hourly basis and literally pay farmers millions of dollars not to grow stuff… that we’d have trendy intellectuals gravitating towards the trappings of the impoverished? It’s a lot like the untold millions of Americans who claim to be, “lactose intolerant.” Is anyone lactose intolerant in Darfur? I’m thinking… not, but what do I know?
So, unable to find anything worse than Ethiopian dining to hang my hat on as being the next new thing, but with the rich getting ever richer in this country every day, I started thinking that perhaps I should design the next trendy chic haute cuisine for those with discerning taste and sophisticated pallets, and open a restaurant myself.
But what could be even more primitive than eating Ethiopian style? It’s hard to beat sand and clay for dinner in terms of making a foodie with bank feel like he or she’s living large.
And then it hit me… Cuisine de Composti… A menu of delights made exclusively from refuse. The toniest locales could have their compost trucked in daily… fresh from Central Jersey, or in LA’s case, flown in fresh from Fresno.
Perfect! What’s even worse than eating in Ethiopia… eating right here at home in these United States. Heck, we’ve got closing in on 50 million on food stamps and at least four million homeless already… by next year those numbers will have both gone up. I’ll market the chance to experience the dining during America’s Great Depression, Part 2, to those not being given the chance to participate in it.
Opening the restaurant won’t cost much because it will be in a foreclosed and already decrepit building that we could be evicted from any day now. We’ll keep trying to get the sale postponed and letting the patrons know what’s happening so they’ll never know when the sheriff might arrive and have them removed… how exciting for them.
This is going to be huge… a way for the uber-rich to live like the neo-poor, but instead of Ethiopian poverty, we’ll let them experience what our own country’s bottom rung people get to taste and smell every day.
We could call the place… La Maison des Ordures (French for “House of Garbage”), and I’d write the first review…
I recommend the Rancid Chicken in Curdled Cream for sure. Consider starting with the Romaine a’la Ptomaine, which is the chef’s signature salad.
For meat lovers, don’t miss out on trying the Putrescence of Pork which is prepared with a Diphtheria Glaze, and it is something you’ll likely remember for days or even weeks afterwards. And what this place does with its Decomposing Flap-Steak Fat is already said to be inspiring chefs around the world.
Don’t forget that upon request any of the meat dishes can be prepared to be served “extra rank,” which uses a rub made from a balanced blend of “miscellaneous droppings, lint scrapings and soap powder.”
Other popular items include the Stinking Fish with Reeking Cheese Potatoes and Insufferable Sauce, and for the real gourmand who isn’t allergic to petroleum-based products, the Eel du Oil is in a class by itself, but check the signs in front of the Arco across the street before ordering, as the price of this dish does fluctuate.
And for pasta lovers don’t pass up the Petrified Noodles, which are traditionally served with various larvaes in a mucous-based marinara… portions are generous so consider ordering one dish for the table and sharing.
On the lunch menu is the Canine Rigatoni… it’s a brand new addition so ask your server for details, and there’s the fabulous Hirsute Herring Chowder, which is served unshaven with a selection of moldy breads and crusty sponges.
And for either the children, or the un-tenured assistant professors from New York City College, along with any other budget conscious guests, there’s the always hearty, “Fetid Franks & Things,” a casserole dish that looks every bit as interesting as it smells.
Desert is certainly worth leaving room for… and the most popular are the Spoiled Crèmes in Kleenex, which is served sprinkled with a mix of coffee grounds, dust and acetaminophen… and who could forget, the dish that started it all, the Crème du Stench, which is truly a bouquet of aromas that shan’t be forgotten.
And for those adventurous diners, who don’t shy away from diseases born south of the border, there’s the Lumpy Crème de Cagada, which for a few dollars more can be ordered without lumps but this change does add about 20 minutes to the preparation time, so be sure to order ahead of time.
After dinner, patrons are welcome to linger over a cup of what appears to be the restaurant’s own coffee, look for it to be listed on the menu as “Steaming Hot Brown Fluid.” Its further description only says that it’s, “a proprietary blend,” and it seemed that by stopping short of disclosing what exactly was being blended, our table’s after dinner conversation was much more lively than usual.
Or, maybe not. I don’t know… now I seem to have lost my appetite…
Besides, I’m just thinking out loud.
Mandelman out.
Manhattan is where the trendy chic food trends begin, for the most part, right? It has always seemed that way to me anyway, although I think LA may be able to take most of the credit for strip mall sushi, and Mexican fare.
Every time I’m in NYC, it seems that someone always suggests dining at some new kind of restaurant that until that moment, I didn’t really know existed. It’s always good in some ways, but it’s never the kind of food of which anyone takes large bites, and I can’t tell you how many times I’ve gone out for spaghetti and meatballs after dinner and goodnight.
I was in the city on business some years ago, dining with the CEO of an international conglomerate type of company who had wanted to dine at what looked to be a Chinese restaurant, but was supposedly representative of some far out province near the Mongolian border where yak was a delicacy, or whatever.
I’ll never forget it because he ordered the unbelievably expensive Bird Nest Soup for the table… if memory serves it was about $600 for maybe eight of us… and I am not making this up, you can ask someone else or look it up online. As I was blowing on a spoonful wondering how I was going to get out of this gracefully… he leaned over to tell me what a delicacy it was because, he said in a hushed tone, it was made with “real bird spit.”
“WHAT?” Unexpectedly taken aback for a moment, I had inadvertently blurted it out much louder than I would have liked. Not really noticing my reaction in any detail, he only repeated himself.
“Oh,” I said. “Real bird s-p-i-t… got it…wow, that is amazing. I thought you said… “
Spoon in hand, he had returned to focus on the contents of the ornate blue and white lacquered soup bowl in front of him. “Never mind,” I mumbled almost to myself.
Real bird spit, while considerably more palatable than its misheard alternative, was still not doing much for me. I remembered that I once had pretty much gagged on a spoonful of egg-drop soup that my daughter ordered and insisted that I try. And I figured that if I didn’t like egg in my soup, it seemed unlikely that I would end having a taste for a soup made from the nest in which the egg could have been laid.
And besides… REAL bird spit? As opposed to what, perhaps? Was there a company manufacturing fake bird spit and passing it off in cans as being the real thing to chefs in Mongolia? That was only my first thought on the subject. My second thought was that, although I detested that stuff referred to as imitation crabmeat, it was quite possible that bird spit would prove to be one of the few things in the world that given the choice, I’d probably just as soon opt for the fake one.
I peered into my spoon’s contents noticing the soup’s undeniable spit-like texture, and then as I watched him slurp it down like it was Campbell’s Chicken Noodle, I pretended it was still a bit too hot and returned my spoon to the bowl. Recognizing that a diversion was going to be needed, I simply waited a minute before knocking my water glass over and in the flurry of apologies and confusion, fed my bird’s nest soup to the oriental carpet. “Mmmm…” I said a few minutes later. Delicious,” and thankfully no was the wiser.
But, it was far too close a call and I made a mental note to do more to avoid getting pinned down in such dicey dining situations. I had learned this lesson before too… people with the means to eat absolutely anything are often drawn to really primitive peasant food and you have to watch them carefully or you could end up having to make a run for the relative privacy of a restaurant’s back alley in order to heave beyond the purview of the other guests.
I was in Helsinki some years ago for a couple of weeks and in case you get the chance to visit Finland… my knee-jerk response would be to yell out… No, don’t do it!
For one thing it never gets dark there so you can have the front desk book your tee time at midnight. But trust me on this, golf is frustrating enough during the hours in which it’s normally played. No one needs to be teeing off straight into the wind on a narrow 200-yard Par 3 with water on both sides at 3:15 AM, especially right after some 6’6” chick with blond hair and unusually muscular forearms named Maijuska, just opened your seventh beer at the turn.
For another, never attempt to spend time in a country where they have street names that make use of the letter ‘N’ five times, three of which being consecutive. Just try finding “Uudenmaankatu Ullanlinna,” after a couple shots of vodka at the hotel bar. Actually, it’s not that hard… it’s just past the intersection of Hietassaarenkuja and Porvoonk and if you hit Teollisuuskatu, you’ve gone too far. If you rent a car, you’re all but certain to be killed in a rear end collision as you attempt to decipher enough of the data involved in the decision of turning one way or the other.
I was there at a conference of the World Health Organization, my father’s doing, not mine, and so we were attending these hoity dinners at which I can only assume the academics and government officials had simply eaten everything the world had to offer and so were being fed things that the rest of us would likely view as “experimental” before we’d identify with it as food we might want to eat.
I remember breakfast vividly, for the most part, it was always a herring buffet… all different kinds of herring prepared in every conceivable way, although some of which I’m certain I would never have been able to conceive. And if you’re thinking that the problem was that herring alone isn’t all that filling, don’t worry… that was not the problem, and it was all the herring you could eat.
With that as breakfast fare, it was barely a surprise to find out that these world-renowned intellectuals with means eat porridge for dinner, but we’re not talking about Cream of Wheat with brown sugar, in this porridge there was invariably either reindeer or blood sausage involved.
I’d offer to describe its taste, but for 10 straight days, I consumed only two foods and one drink: 1. Boxes of what appeared to be the Finnish equivalent of Lorna Doones. 2. Very large bowls of Beluga and Osetra caviar on toast points with a squeeze of lemon and chased by innumerable ice-cold shots of Finnish vodka.
After that, while traveling in the Baltic, First Class on a cruise ship headed for St. Petersburg, I quickly discovered that I was unable to come within six feet of a huge vat sitting right in the middle of the breakfast buffet table every morning. I was told that it contained oatmeal, but I knew they were lying because although I will readily concede that “oatmeal” can spoil… it doesn’t die. And there was no question in my mind that whatever was now inside that giant vat, it had not walked among living creatures for many years.
So, you’d think that I’d have learned my lesson after all these years, but the last time I was in Manhattan someone said, “Hey, let’s go have Ethiopian food,” and inexplicably, I replied saying, “Okay, sounds good.” I heard myself say it… wanted to take it back, but it was too late, my host was already into telling me how much I was sure to love it.
Ethiopian food? Really? To my ears, it sounded like “jumbo shrimp.” I thought food in Ethiopia was at least somewhat a rarity… maybe not compared with Chad or Somalia, but up against Tribeca or the East Village, for sure.
Twenty years ago the epicurean daredevils would have been touting “Sushi,” which today, I admittedly find delicious, but that doesn’t change the fact that a country’s cuisine made up of small pieces of raw fish could only develop in a country where you can’t afford a whole fish per person and you lack the electricity or gas to allow most people to own stoves. If you have the yen, you order up a filet at Morton’s way before you develop a diet based on bite size pieces of raw fish… and rice.
And it makes sense to me because Japan is a rock about the size of New Jersey in the middle of the ocean; only one-seventh of the rock is arable… and historically speaking, the land nearby is generally jam packed with marauding hordes of one kind or another. Much safer if you learn to feed the people on your rock without anyone having to leave it, no question about it. So, rice and small pieces of raw fish rules the day, and I completely understand.
Another example is found in the tortillas with which so many Americans have become enamored. I mean, they’re fine for holding whatever you put inside them, as long as it’s beans, rice, and some kind of meat, and the whole thing will taste great given sufficient amounts of salsa, guacamole and sour cream.
But tortillas couldn’t have been everything their inventors were looking for, they had to be the result of people not being able to afford whatever they needed to make bread, right? They weren’t anyone’s first choice. Like they got sick of eating so much bread that they switched to tortillas? I seriously doubt that. Every time I hear someone ask, “Flour or corn?” I can’t help but think to myself, “Paper or plastic?” I mean, who cares?
How about this for an answer: Whichever promises to most significant reduction in the probability that the food inside will end up in my lap. With that in mind, you make the call.
Just like matzo, for the Jews in the audience, which was also clearly no one’s recipe, but rather is the sort of outcome possible when a bunch of slaves, on their way to a 40-year trek in the Sinai Desert, unexpectedly have to leave town in a hurry. Why we have to relive the outcome of planning so poorly that we were left with matzo thousands of years after the event is beyond me. I mean, come on… let my people go already.
And don’t start with that “tradition” nonsense. I don’t need a Tevya in my life unless he’s being played by Zero Mostel, capisce?
You don’t see any Jews volunteering to wander around for extended periods in the desert for tradition’s sake, do you? Not a chance. The closest thing to that you’ll ever see from today’s Jews occurs when Walter Annenberg and his wife spend a week or two at their place in Rancho Mirage.
No one WANTS to eat matzo, which is why even Jews only consider doing it over the course of maybe a week a year. I somehow manage to choke down half a sheet sheet of the stuff annually, but only if I can find the Egg & Onion flavor and slather it in butter and salt, which is basically the same sort of scenario under which I would be willing to eat shirt cardboard. Eating the stuff without some sort of liquid within reach kills more people each year than any other food except improperly prepared blow fish.
Matzo was simply the best they could do in a pinch. If you don’t have a pharaoh on your tail who’s bent on exterminating your entire clan, and there isn’t a guy named Moses running from hut to hut yelling, “Let’s go, for Christ’s sake,” then you let the bread rise and leave the following day.
So anyway, that’s what we did… we went out for Ethiopian food, which I soon learned is not all that far from what I expected would be the cuisine of a poor African nation that, for most of my life, was at war with neighboring Eritrea. And, why a country plagued by drought would attempt to develop an economy based almost exclusively on agriculture is one of those head scratchers for smarter minds than mine.
Didn’t they learn anything from Las Vegas? I know they know about Vegas because half the cab drivers in Vegas are either from Ethiopia or Eritrea, so you’d think that by now someone would have sent a postcard home with a few tips, at the very least.
Or maybe it’s that, “what happens in Vegas stays in Vegas,” thing at work. (Okay, I apologize for that. It was entirely uncalled for and just plain wrong. You have my word that it won’t happen again.)
So, after being seated at a table for four, the six of us perused the menu in complete silence until it was awkward. And just my luck, our waiter, who was a dead-ringer for Ziggy Marley, approached my side of the table first, saying…
“Are you ready to order, Mon?”
“Yes. I think I’ll have three small bowls of paste and a basket of sandy sponges.”
“Very good, sir. What color pastes would you like?”
“Hmm… let’s stay with Earth-tones… oh, and nothing purple,” the last thought having been inspired at the last moment as a table nearby received its order as I was finishing mine.
“Great, and to drink?”
“Let’s see… which do you recommend… the Desert Brush Tea or the Clay-aide? Never mind, I think I’ll have the tea.” The waiter had already turned his attention to the next order but when I mumbled under my breath, “I drank too much clay last night,” he turned back to me. “I’m sorry, did you want to change something?”
“No, I’m fine,” I replied. “Absolutely perfect.” Great, I thought. Now he’d probably spit in my tea before bringing it to the table. I started imagining that I was Larry David in an episode of “Curb Your Enthusiasm.”
Our host loved his meal. You could tell that he was literally enthralled by the overly cultural experience… he even knew how to pronounce his selection, although I decided not to ask him to translate it, even though I was 90 percent sure that he didn’t order goat entrails, so it probably would have been fine if he did. At moments like that, I guess I just figure… why tempt fate, if you know what I mean.
So, would you like to know how I liked my Ethiopian meal? I’ll tell you… it made me want to starve to death. I hadn’t realized it before, but the occurrence of starvation in Ethiopia is probably a choice in many instances… people just can’t face another bowl of paste and sponges. The country’s slogan could easily be changed to read…
As I sat there, at first strategically moving my food around on my plate, and then generously offering everyone at our table and even those seated close by the opportunity to try what I had ordered, describing its taste like someone hosting an infomercial, I could tell that Ethiopian food was so 2010.
It had shown the world the many ways that sand, clay and brush could be transformed into dishes with varying amounts of moistness… some merely damp, others entirely soupy. And now there would be something new… something with even less appeal than eating what falls on the floor of the African continent.
These multicolored pastes and play-doughs, it occurred to me, had been brought from the Horn of Africa to Manhattan for no discernable reason other than to provide upscale foodies a taste of what it feels like to be malnourished. I decided that I would endeavor to impress my friends back in L.A. by finding out which country’s cuisine was likely to become the next trendy eatery for the recession-proof, restaurant addicted segment of our population before I left town.
I asked around… nothing. I tried the Zabar’s shoppers, and still… no ideas. Then, I figured that maybe the best way to find America’s next trendy dining experience might be to check the other countries where starvation has traditionally flourished. Would there be restaurants serving food from Darfur or Somalia, for example?
Doesn’t it just figure that in this country, where we have so much food we that throw away inconceivable amounts on an hourly basis and literally pay farmers millions of dollars not to grow stuff… that we’d have trendy intellectuals gravitating towards the trappings of the impoverished? It’s a lot like the untold millions of Americans who claim to be, “lactose intolerant.” Is anyone lactose intolerant in Darfur? I’m thinking… not, but what do I know?
So, unable to find anything worse than Ethiopian dining to hang my hat on as being the next new thing, but with the rich getting ever richer in this country every day, I started thinking that perhaps I should design the next trendy chic haute cuisine for those with discerning taste and sophisticated pallets, and open a restaurant myself.
But what could be even more primitive than eating Ethiopian style? It’s hard to beat sand and clay for dinner in terms of making a foodie with bank feel like he or she’s living large.
And then it hit me… Cuisine de Composti… A menu of delights made exclusively from refuse. The toniest locales could have their compost trucked in daily… fresh from Central Jersey, or in LA’s case, flown in fresh from Fresno.
Perfect! What’s even worse than eating in Ethiopia… eating right here at home in these United States. Heck, we’ve got closing in on 50 million on food stamps and at least four million homeless already… by next year those numbers will have both gone up. I’ll market the chance to experience the dining during America’s Great Depression, Part 2, to those not being given the chance to participate in it.
Opening the restaurant won’t cost much because it will be in a foreclosed and already decrepit building that we could be evicted from any day now. We’ll keep trying to get the same postponed and letting the patrons know what’s happening so they’ll never know when the sheriff might arrive and have them removed… how exciting for them.
This is going to be huge… a way for the rich to live like the poor, but instead of Ethiopian poverty, we’ll let them experience what our own country’s poor people get to taste and smell every day.
We could call the place… La Maison des Ordures (French for “House of Garbage”), and I’d write the first review…
I recommend the Rancid Chicken in Curdled Cream for sure. Consider starting with the Romaine a’la Ptomaine, which is the chef’s signature salad.
For meat lovers, don’t miss out on trying the Putrescence of Pork which is prepared with a Diphtheria Glaze, as it is something you’ll likely remember for days or even weeks afterwards. And what this place does with its Decomposing Flap-Steak Fat is already said to be inspiring chefs around the world.
Don’t forget that upon request any of the meat dishes can be prepared to be served “extra rank,” which uses a rub made from a balanced blend of “miscellaneous droppings, lint scrapings and soap powder.”
Other popular items include the Stinking Fish with Reeking Cheese Potatoes, and for the real gourmand who isn’t allergic to petroleum-based products, the Eel du Oil is in a class by itself, but check the signs in front of the Arco across the street before ordering, as the price of this dish does fluctuate. And for pasta lovers don’t pass up the Petrified Noodles, which are traditionally served with various larvaes in a mucous-based marinara… portions are generous so consider ordering one dish for the table and sharing.
On the lunch menu is the Canine Rigatoni, it’s a brand new addition so ask your server for details, and there’s a fabulous Hirsute Herring Chowder, which is served unshaven with what we assumed was a selection of moldy breads and dried out sponges.
And for either the children, or the un-tenured assistant professors from New York City College, along with any other budget conscious guests, there’s the always hearty, “Fetid Franks & Things,” a casserole dish that looks every bit as interesting as it smells.
Desert is certainly worth leaving room for… and the most popular are the Spoiled Crèmes in Kleenex, which is served sprinkled with a mix of coffee grounds, dust and acetaminophen… and who could forget, the dish that started it all, the Crème du Stench, which is truly a bouquet of aromas that shan’t be forgotten.
And for those adventurous diners, who don’t mind diseases from south of the border, there’s the Lumpy Crème de Cagada, which for a few dollars more can be prepared without lumps but this does require about 20 minutes longer to prepare so be sure to order ahead of time.
After dinner, patrons are welcome to linger over a cup of what appears to be the restaurant’s own coffee, look for it to be listed on the menu as “Steaming Hot Brown Fluid.” Its further description only says that it’s, “a proprietary blend,” and it seemed that by stopping short of disclosing what was exactly was being blended, our table’s after dinner conversation was much more lively than usual.
Or, maybe not. I don’t know… now I seem to have lost my appetite…
Besides, I’m just thinking out loud.
Mandelman out.
Manhattan is where the trendy chic food trends begin, for the most part, right? It has always seemed that way to me anyway, although I think LA may be able to take most of the credit for strip mall sushi, and Mexican fare.
Every time I’m in NYC, it seems that someone always suggests dining at some new kind of restaurant that until that moment, I didn’t really know existed. It’s always good in some ways, but it’s never the kind of food of which anyone takes large bites, and I can’t tell you how many times I’ve gone out for spaghetti and meatballs after dinner and goodnight.
I was in the city on business some years ago, dining with the CEO of an international conglomerate type of company who had wanted to dine at what looked to be a Chinese restaurant, but was supposedly representative of some far out province near the Mongolian border where yak was a delicacy, or whatever.
I’ll never forget it because he ordered the unbelievably expensive Bird Nest Soup for the table… if memory serves it was about $600 for maybe eight of us… and I am not making this up, you can ask someone else or look it up online. As I was blowing on a spoonful wondering how I was going to get out of this gracefully… he leaned over to tell me what a delicacy it was because, he said in a hushed tone, it was made with “real bird spit.”
“WHAT?” Unexpectedly taken aback for a moment, I had inadvertently blurted it out much louder than I would have liked. Not really noticing my reaction in any detail, he only repeated himself.
“Oh,” I said. “Real bird s-p-i-t… got it…wow, that is amazing. I thought you said… “
Spoon in hand, he had returned to focus on the contents of the ornate blue and white lacquered soup bowl in front of him. “Never mind,” I mumbled almost to myself.
Real bird spit, while considerably more palatable than its misheard alternative, was still not doing much for me. I remembered that I once had pretty much gagged on a spoonful of egg-drop soup that my daughter ordered and insisted that I try. And I figured that if I didn’t like egg in my soup, it seemed unlikely that I would end having a taste for a soup made from the nest in which the egg could have been laid.
And besides… REAL bird spit? As opposed to what, perhaps? Was there a company manufacturing fake bird spit and passing it off in cans as being the real thing to chefs in Mongolia? That was only my first thought on the subject. My second thought was that, although I detested that stuff referred to as imitation crabmeat, it was quite possible that bird spit would prove to be one of the few things in the world that given the choice, I’d probably just as soon opt for the fake one.
I peered into my spoon’s contents noticing the soup’s undeniable spit-like texture, and then as I watched him slurp it down like it was Campbell’s Chicken Noodle, I pretended it was still a bit too hot and returned my spoon to the bowl. Recognizing that a diversion was going to be needed, I simply waited a minute before knocking my water glass over and in the flurry of apologies and confusion, fed my bird’s nest soup to the oriental carpet. “Mmmm…” I said a few minutes later. Delicious,” and thankfully no was the wiser.
But, it was far too close a call and I made a mental note to do more to avoid getting pinned down in such dicey dining situations. I had learned this lesson before too… people with the means to eat absolutely anything are often drawn to really primitive peasant food and you have to watch them carefully or you could end up having to make a run for the relative privacy of a restaurant’s back alley in order to heave beyond the purview of the other guests.
I was in Helsinki some years ago for a couple of weeks and in case you get the chance to visit Finland… my knee-jerk response would be to yell out… No, don’t do it!
For one thing it never gets dark there so you can have the front desk book your tee time at midnight. But trust me on this, golf is frustrating enough during the hours in which it’s normally played. No one needs to be teeing off straight into the wind on a narrow 200-yard Par 3 with water on both sides at 3:15 AM, especially right after some 6’6” chick with blond hair and unusually muscular forearms named Maijuska, just opened your seventh beer at the turn.
For another, never attempt to spend time in a country where they have street names that make use of the letter ‘N’ five times, three of which being consecutive. Just try finding “Uudenmaankatu Ullanlinna,” after a couple shots of vodka at the hotel bar. Actually, it’s not that hard… it’s just past the intersection of Hietassaarenkuja and Porvoonk and if you hit Teollisuuskatu, you’ve gone too far. If you rent a car, you’re all but certain to be killed in a rear end collision as you attempt to decipher enough of the data involved in the decision of turning one way or the other.
I was there at a conference of the World Health Organization, my father’s doing, not mine, and so we were attending these hoity dinners at which I can only assume the academics and government officials had simply eaten everything the world had to offer and so were being fed things that the rest of us would likely view as “experimental” before we’d identify with it as food we might want to eat.
I remember breakfast vividly, for the most part, it was always a herring buffet… all different kinds of herring prepared in every conceivable way, although some of which I’m certain I would never have been able to conceive. And if you’re thinking that the problem was that herring alone isn’t all that filling, don’t worry… that was not the problem, and it was all the herring you could eat.
With that as breakfast fare, it was barely a surprise to find out that these world-renowned intellectuals with means eat porridge for dinner, but we’re not talking about Cream of Wheat with brown sugar, in this porridge there was invariably either reindeer or blood sausage involved.
I’d offer to describe its taste, but for 10 straight days, I consumed only two foods and one drink: 1. Boxes of what appeared to be the Finnish equivalent of Lorna Doones. 2. Very large bowls of Beluga and Osetra caviar on toast points with a squeeze of lemon and chased by innumerable ice-cold shots of Finnish vodka.
After that, while traveling in the Baltic, First Class on a cruise ship headed for St. Petersburg, I quickly discovered that I was unable to come within six feet of a huge vat sitting right in the middle of the breakfast buffet table every morning. I was told that it contained oatmeal, but I knew they were lying because although I will readily concede that “oatmeal” can spoil… it doesn’t die. And there was no question in my mind that whatever was now inside that giant vat, it had not walked among living creatures for many years.
So, you’d think that I’d have learned my lesson after all these years, but the last time I was in Manhattan someone said, “Hey, let’s go have Ethiopian food,” and inexplicably, I replied saying, “Okay, sounds good.” I heard myself say it… wanted to take it back, but it was too late, my host was already into telling me how much I was sure to love it.
Ethiopian food? Really? To my ears, it sounded like “jumbo shrimp.” I thought food in Ethiopia was at least somewhat a rarity… maybe not compared with Chad or Somalia, but up against Tribeca or the East Village, for sure.
Twenty years ago the epicurean daredevils would have been touting “Sushi,” which today, I admittedly find delicious, but that doesn’t change the fact that a country’s cuisine made up of small pieces of raw fish could only develop in a country where you can’t afford a whole fish per person and you lack the electricity or gas to allow most people to own stoves. If you have the yen, you order up a filet at Morton’s way before you develop a diet based on bite size pieces of raw fish… and rice.
And it makes sense to me because Japan is a rock about the size of New Jersey in the middle of the ocean; only one-seventh of the rock is arable… and historically speaking, the land nearby is generally jam packed with marauding hordes of one kind or another. Much safer if you learn to feed the people on your rock without anyone having to leave it, no question about it. So, rice and small pieces of raw fish rules the day, and I completely understand.
Another example is found in the tortillas with which so many Americans have become enamored. I mean, they’re fine for holding whatever you put inside them, as long as it’s beans, rice, and some kind of meat, and the whole thing will taste great given sufficient amounts of salsa, guacamole and sour cream.
But tortillas couldn’t have been everything their inventors were looking for, they had to be the result of people not being able to afford whatever they needed to make bread, right? They weren’t anyone’s first choice. Like they got sick of eating so much bread that they switched to tortillas? I seriously doubt that. Every time I hear someone ask, “Flour or corn?” I can’t help but think to myself, “Paper or plastic?” I mean, who cares?
How about this for an answer: Whichever promises to most significant reduction in the probability that the food inside will end up in my lap. With that in mind, you make the call.
Just like matzo, for the Jews in the audience, which was also clearly no one’s recipe, but rather is the sort of outcome possible when a bunch of slaves, on their way to a 40-year trek in the Sinai Desert, unexpectedly have to leave town in a hurry. Why we have to relive the outcome of planning so poorly that we were left with matzo thousands of years after the event is beyond me. I mean, come on… let my people go already.
And don’t start with that “tradition” nonsense. I don’t need a Tevya in my life unless he’s being played by Zero Mostel, capisce?
You don’t see any Jews volunteering to wander around for extended periods in the desert for tradition’s sake, do you? Not a chance. The closest thing to that you’ll ever see from today’s Jews occurs when Walter Annenberg and his wife spend a week or two at their place in Rancho Mirage.
No one WANTS to eat matzo, which is why even Jews only consider doing it over the course of maybe a week a year. I somehow manage to choke down half a sheet sheet of the stuff annually, but only if I can find the Egg & Onion flavor and slather it in butter and salt, which is basically the same sort of scenario under which I would be willing to eat shirt cardboard. Eating the stuff without some sort of liquid within reach kills more people each year than any other food except improperly prepared blow fish.
Matzo was simply the best they could do in a pinch. If you don’t have a pharaoh on your tail who’s bent on exterminating your entire clan, and there isn’t a guy named Moses running from hut to hut yelling, “Let’s go, for Christ’s sake,” then you let the bread rise and leave the following day.
So anyway, that’s what we did… we went out for Ethiopian food, which I soon learned is not all that far from what I expected would be the cuisine of a poor African nation that, for most of my life, was at war with neighboring Eritrea. And, why a country plagued by drought would attempt to develop an economy based almost exclusively on agriculture is one of those head scratchers for smarter minds than mine.
Didn’t they learn anything from Las Vegas? I know they know about Vegas because half the cab drivers in Vegas are either from Ethiopia or Eritrea, so you’d think that by now someone would have sent a postcard home with a few tips, at the very least.
Or maybe it’s that, “what happens in Vegas stays in Vegas,” thing at work. (Okay, I apologize for that. It was entirely uncalled for and just plain wrong. You have my word that it won’t happen again.)
So, after being seated at a table for four, the six of us perused the menu in complete silence until it was awkward. And just my luck, our waiter, who was a dead-ringer for Ziggy Marley, approached my side of the table first, saying…
“Are you ready to order, Mon?”
“Yes. I think I’ll have three small bowls of paste and a basket of sandy sponges.”
“Very good, sir. What color pastes would you like?”
“Hmm… let’s stay with Earth-tones… oh, and nothing purple,” the last thought having been inspired at the last moment as a table nearby received its order as I was finishing mine.
“Great, and to drink?”
“Let’s see… which do you recommend… the Desert Brush Tea or the Clay-aide? Never mind, I think I’ll have the tea.” The waiter had already turned his attention to the next order but when I mumbled under my breath, “I drank too much clay last night,” he turned back to me. “I’m sorry, did you want to change something?”
“No, I’m fine,” I replied. “Absolutely perfect.” Great, I thought. Now he’d probably spit in my tea before bringing it to the table. I started imagining that I was Larry David in an episode of “Curb Your Enthusiasm.”
Our host loved his meal. You could tell that he was literally enthralled by the overly cultural experience… he even knew how to pronounce his selection, although I decided not to ask him to translate it, even though I was 90 percent sure that he didn’t order goat entrails, so it probably would have been fine if he did. At moments like that, I guess I just figure… why tempt fate, if you know what I mean.
So, would you like to know how I liked my Ethiopian meal? I’ll tell you… it made me want to starve to death. I hadn’t realized it before, but the occurrence of starvation in Ethiopia is probably a choice in many instances… people just can’t face another bowl of paste and sponges. The country’s slogan could easily be changed to read…
As I sat there, at first strategically moving my food around on my plate, and then generously offering everyone at our table and even those seated close by the opportunity to try what I had ordered, describing its taste like someone hosting an infomercial, I could tell that Ethiopian food was so 2010.
It had shown the world the many ways that sand, clay and brush could be transformed into dishes with varying amounts of moistness… some merely damp, others entirely soupy. And now there would be something new… something with even less appeal than eating what falls on the floor of the African continent.
These multicolored pastes and play-doughs, it occurred to me, had been brought from the Horn of Africa to Manhattan for no discernable reason other than to provide upscale foodies a taste of what it feels like to be malnourished. I decided that I would endeavor to impress my friends back in L.A. by finding out which country’s cuisine was likely to become the next trendy eatery for the recession-proof, restaurant addicted segment of our population before I left town.
I asked around… nothing. I tried the Zabar’s shoppers, and still… no ideas. Then, I figured that maybe the best way to find America’s next trendy dining experience might be to check the other countries where starvation has traditionally flourished. Would there be restaurants serving food from Darfur or Somalia, for example?
Doesn’t it just figure that in this country, where we have so much food we that throw away inconceivable amounts on an hourly basis and literally pay farmers millions of dollars not to grow stuff… that we’d have trendy intellectuals gravitating towards the trappings of the impoverished? It’s a lot like the untold millions of Americans who claim to be, “lactose intolerant.” Is anyone lactose intolerant in Darfur? I’m thinking… not, but what do I know?
So, unable to find anything worse than Ethiopian dining to hang my hat on as being the next new thing, but with the rich getting ever richer in this country every day, I started thinking that perhaps I should design the next trendy chic haute cuisine for those with discerning taste and sophisticated pallets, and open a restaurant myself.
But what could be even more primitive than eating Ethiopian style? It’s hard to beat sand and clay for dinner in terms of making a foodie with bank feel like he or she’s living large.
And then it hit me… Cuisine de Composti… A menu of delights made exclusively from refuse. The toniest locales could have their compost trucked in daily… fresh from Central Jersey, or in LA’s case, flown in fresh from Fresno.
Perfect! What’s even worse than eating in Ethiopia… eating right here at home in these United States. Heck, we’ve got closing in on 50 million on food stamps and at least four million homeless already… by next year those numbers will have both gone up. I’ll market the chance to experience the dining during America’s Great Depression, Part 2, to those not being given the chance to participate in it.
Opening the restaurant won’t cost much because it will be in a foreclosed and already decrepit building that we could be evicted from any day now. We’ll keep trying to get the same postponed and letting the patrons know what’s happening so they’ll never know when the sheriff might arrive and have them removed… how exciting for them.
This is going to be huge… a way for the rich to live like the poor, but instead of Ethiopian poverty, we’ll let them experience what our own country’s poor people get to taste and smell every day.
We could call the place… La Maison des Ordures (French for “House of Garbage”), and I’d write the first review…
I recommend the Rancid Chicken in Curdled Cream for sure. Consider starting with the Romaine a’la Ptomaine, which is the chef’s signature salad.
For meat lovers, don’t miss out on trying the Putrescence of Pork which is prepared with a Diphtheria Glaze, as it is something you’ll likely remember for days or even weeks afterwards. And what this place does with its Decomposing Flap-Steak Fat is already said to be inspiring chefs around the world.
Don’t forget that upon request any of the meat dishes can be prepared to be served “extra rank,” which uses a rub made from a balanced blend of “miscellaneous droppings, lint scrapings and soap powder.”
Other popular items include the Stinking Fish with Reeking Cheese Potatoes, and for the real gourmand who isn’t allergic to petroleum-based products, the Eel du Oil is in a class by itself, but check the signs in front of the Arco across the street before ordering, as the price of this dish does fluctuate. And for pasta lovers don’t pass up the Petrified Noodles, which are traditionally served with various larvaes in a mucous-based marinara… portions are generous so consider ordering one dish for the table and sharing.
On the lunch menu is the Canine Rigatoni, it’s a brand new addition so ask your server for details, and there’s a fabulous Hirsute Herring Chowder, which is served unshaven with what we assumed was a selection of moldy breads and dried out sponges.
And for either the children, or the un-tenured assistant professors from New York City College, along with any other budget conscious guests, there’s the always hearty, “Fetid Franks & Things,” a casserole dish that looks every bit as interesting as it smells.
Desert is certainly worth leaving room for… and the most popular are the Spoiled Crèmes in Kleenex, which is served sprinkled with a mix of coffee grounds, dust and acetaminophen… and who could forget, the dish that started it all, the Crème du Stench, which is truly a bouquet of aromas that shan’t be forgotten.
And for those adventurous diners, who don’t mind diseases from south of the border, there’s the Lumpy Crème de Cagada, which for a few dollars more can be prepared without lumps but this does require about 20 minutes longer to prepare so be sure to order ahead of time.
After dinner, patrons are welcome to linger over a cup of what appears to be the restaurant’s own coffee, look for it to be listed on the menu as “Steaming Hot Brown Fluid.” Its further description only says that it’s, “a proprietary blend,” and it seemed that by stopping short of disclosing what was exactly was being blended, our table’s after dinner conversation was much more lively than usual.
Or, maybe not. I don’t know… now I seem to have lost my appetite…
Besides, I’m just thinking out loud.
Mandelman out.
I’d like your opinion on the following purely hypothetical scenario…
If a small group of individuals working within a nation’s government made a series of decisions that destroyed the economic security of tens of millions of the country’s citizens… decisions that literally cost thousands of lives, and in all likelihood shortened the life expectancies of hundreds of thousands more… failed to such a degree that it would be more than a decade before any recovery would be possible… then claimed economic recovery knowing that 93 percent of gains had gone to the top one percent… and they did all of this while failing to address the core issues that led to the crisis in the first place…
… should such individuals be prosecuted… impeached… or imprisoned?
And I can’t help but wonder… again, purely hypothetically, of course… what sort of harm would such “leaders” have to cause before they should they be executed? Because, it would seem obvious to say that they damn sure should not be reelected… or at least not allowed to continue on their chosen path.
Please don’t get agitated… I’m not suggesting President Obama be prosecuted, impeached, imprisoned… and, good Lord… certainly not executed. Nor am I suggesting such fates as being appropriate for Messrs. Geithner or Summers. It was a purely hypothetical scenario that I posed… not one I am suggesting exists in reality in the United States of America today.
But, you do know what I’m saying, right?
And that you just answered that query in the affirmative… should alone be enough to give one pause.
Now, I’m not going to get involved in the mincing of words, nor am I going to suggest that the policy decisions made by the Obama Administration were in any way nefarious. In fact, to the contrary… I’m willing to accept that the administration’s decisions to-date were made in the face of such unprecedented complexity and political impenetrability that some amount of reasonably momentous error was all but preordained.
I am also not writing this as some sort of political diatribe designed to potentially influence for whom one should or shouldn’t vote in 2012. Our presidential elections are a choice between two, or perhaps more, candidates, and Americans are all quite familiar with a thought process that results in a vote against one… as often as for another.
And, while you should read these words as an indictment of the decisions made by the Obama Administration during its first term in office, you may also rest assured that the fact that the Republican party as a whole has done nothing to help the administration contend with the catastrophic economic situation our nation continues to face, has in no way been lost on me.
In point of fact, the Republicans have engaged in obstructionist politics during a time of national crisis and should be ashamed. I don’t think there’s any question that were our crises made from war, their acts would have been seen as nothing short of treasonous and therefore would have been unthinkable.
All told, as related to our nation’s economy, every American citizen today should view the on-going inaction on both sides of the aisle, as utterly intolerable.
The fact is that I could very easily make a list of government programs, each with budgets in the billions, all promoted as somehow mitigating the damage being caused by the foreclosure crisis, and all whose outcomes would have been identical to those reported… had the programs been administered by farm animals.
And that would be funny, were it not so literal and entirely accurate.
This past week, Kristin Roberts and Stacy Kaper, writing for the National Journal, documented the appalling story of the incomprehensible failure of the Obama Administration to arrest the damage being caused by the foreclosure crisis that’s still tearing through American families and households with the destructive force of a category five storm.
Roberts and Kaper began their article recounting a recent meeting at the Treasury Department, at which they said, civil-rights and housing advocates were “presenting a brutal reality check to President Obama’s Treasury secretary. The administration’s housing programs, they said, were ill-conceived, had failed woefully, and would be indefensible in an election year.”
Apparently, a woman by the name of Janet Murguia, president of the nation’s largest Latino-rights organization, gave Mr. Geithner an ultimatum:
“Make dramatic changes to your housing program, or the National Council of La Raza will be unable to carry Obama’s message to Hispanic voters in 2012.”
(I don’t know what if anything Secretary Geithner said after that meeting ended, maybe he said nothing… out loud. But, I just have to believe that in his head the words sounded something like, “Si no le gusta Obama, estoy seguro de que vas a amar a Romney.” Assuming Tim speaks Spanish, of course. Roughly translated it means… “Yeah, well if you don’t like Obama, I’m sure you’re going to love Mitt Romney.”)
Make no mistake about it, whether as a society or as an economy, we are unlikely to fully “recover” in my lifetime. And truth be told, all I have left are tears, for never before in history has so much been so needlessly extinguished sans the millions of body bags that come home from a world at war.
It is incomprehensible that our plight is not even close to being over, but it should be sincerely humbling that, as I write these words, we don’t even have a plan on a drawing board that one could credibly claim has even the remotest chance of abating a crisis that can only continue to break the economic back of our middle class, ultimately destroying our citizenry’s faith in what has been referred to as “The American Dream” for more than 200 years.
For ours is not so much a financial crisis… nor a liquidity crisis… nor a credit crisis… nor a crisis caused by over-leverage and excessive debt. What we are experiencing is a crisis that is being perpetuated by the near complete loss of trust on the part of investors and consumers.
And… “Once you lose trust you just don’t get it back… you just don’t.”
During the summer of 2007, investors around the world lost trust in the mortgage-backed securities and their complex derivatives. We haven’t had a meaningful private securitization of such debt since that time, and we aren’t going to see such private securitizations of mortgage debt anytime soon.
In fact, the only securitizations of mortgage debt we have today are government guaranteed via Fannie, Freddie, FHA, VA, et al. Absent the government guarantee, there would essentially be no mortgages available… period.
Over the handful of years between 2003 and 2007, investors bought into securities rated AAA… but soon found out they should never have been rated AAA. Almost overnight, demand for these securities dried up, and the banks that were holding Collateralized Debt Obligations (CDOs) on their books found that they couldn’t be sold… and if they couldn’t be sold, then what were they worth? And the answer was that no one knew.
These are the “toxic assets” that then Treasury Secretary Hank Paulson was planning to buy with the TARP funds… until he realized that banks wouldn’t sell them at a discount, and that it would be political suicide for him to buy them at face value.
The result of all this was that housing prices that had started dropping during the summer of 2006 after Alan Greenspan raised interest rates 17 times in a row, now went into a credit crisis inspired free fall. The further they fell the more people went underwater… and the more that went underwater… the more fell into foreclosure.
Without credit being available and with home equity evaporating, spending by consumers fell off a cliff… companies started laying off workers and unemployment had nowhere to go but up… which in turn increased the number of foreclosures, which in turn lowered housing prices… forcing more underwater, thus leading to more foreclosures still.
So… with the number of defaulting loans continuing to rise each year since 2006, investors have incurred losses that now total well into the trillions. Some of these losses were the result of some variation of securities fraud, to be sure. But as the crisis has been allowed to grow in size and scope, it’s become more and more difficult to tell which securities were fraudulently packaged and which were destroyed by the damage our government failed to mitigate at every single opportunity.
Not that I imagine investors care why, at this point. They got burned big time, and their burning isn’t nearly over yet. So, as far as selling them more mortgage-backed securities rated “investment grade” by Moody’s or S&P… I don’t think you need an MBA from Harvard to come to the conclusion that the prospects of that happening anytime soon are… shall we say… “BLEAK.”
Chris Whalen knows banking…
Just a few weeks ago, Institutional Risk Analytics (“IRA”) Vice Chairman, Christopher Whalen, speaking to the audience at American Enterprise Institute, described quite succinctly why talk of housing recovery is premature. Not to put too fine a point on it but the phrase used was “dead cat bounce.” As the IRA blog stated:
“… you won’t here that from any politicians from either of the institutional political parties in this election year. Politicians and their enablers in the economics professional all want to believe that the US housing sector is on its way back.”
Yes, well… I want to believe that maybe I’ll win the Masters one day as a senior citizen, but although I wouldn’t want to rule out the possibility, I likewise wouldn’t want to find out that policymakers in Washington D.C. are basing anything on such fanciful ideas.
As Mr. Whalen said at the conference…
“There is no private label market nor is it likely that the private label market for RMBS is going to recover anytime soon. Memo to Peter Wallison, Rep. Scott Garret (R-NJ) and our other friends in Washington working to eliminate Fannie and Freddie: Stop talking about a private sector alternative to the GSEs in the near term. There is no private sector alternative to the government housing agencies.”
“The lack of credit availability is the chief reason that housing will not recover in the near term.”
Whalen also points out that beyond the issue of investors losing trust, until the Fed raises interest rates the private label market for non-conforming loans and RMBS won’t be back no matter what. It’s not hard to understand… with rates at zero there is simply no incentive for private investors to take on the risk of non-conforming residential mortgages. Or, in other words, if the spread isn’t there, you might as well just buy Treasuries.
According to Jonathan Corr, Chief Operating Officer of Ellie Mae, a company that tracks the characteristics of loans, credit standards are tightening.
Corr told Nick Timiraos of the Wall Street Journal that conforming loans, which are those made by Fannie Mae and Freddie Mac, that were approved for purchases in February of this year had an average credit score of 764 and an average down payment of 22%. Applications that were DENIED had an average credit score of 732 and an average down payment of 19%.
And as far as refinancing goes, Ellie Mae’s report shows Fannie and Freddie February borrowers had an average credit score of 770.
With the FHA looking like the next mega-billion dollar bailout, even FHA loans are getting harder to qualify for… in February, the average credit score for someone trying to refinance through an FHA loan stood at 722, which is up from 706 last August. Purchase loans approved by the FHA had an average credit score of 701 with an average down payment of 5%.
In addition to all of this, according to Laurie Goodman at Amherst Securities, the total population of homebuyers in the US has declined by roughly 20% since 2005. She points out that Americans are not deleveraging in terms of reducing debt. More accurately, “the remaining 80% of homeowners/buyers continue to labor under excessive levels of debt. If these families are ever able to sell their homes, it is a pretty good bet that they will either downsize to smaller dwellings or rent.”
Chris Whalen said it more bluntly to the audience at AEI few weeks ago…
“… forget the economist twaddle about consumer deleveraging. We have merely charged-off the worst defaults in the population, leaving the survivors to service mortgages that are at or below water in terms of LTVs.”
None of this should be difficult to understand…
Historically, at least two-thirds of homebuyers are also home-sellers, that is to say they are selling a home in order to buy another.
But, if half of today’s homeowners are underwater or effectively underwater, meaning they owe more than their homes are worth, or they would if sales commissions and other moving expenses were factored in… then they can’t sell… so they can’t buy. Many won’t be able to sell for a long, long time, and with housing prices continuing to fall (more on that in a moment), more and more are being cemented into this group all the time.
As Goodman explained in a recent presentation, at best all we’re doing is charging off the debt of defaulted borrowers, thus leaving behind a smaller pool of homeowners who have too much debt to function in the housing market.
Just do the math… if historically two-thirds of homebuyers were also home-sellers, but half of those home-sellers now can’t sell… then the future demand for homes is going to be significantly lower than it has in the past.
Yes, there are first-time buyers, although not nearly as many as in the past. Many aren’t rushing to buy after seeing their parent’s equity evaporate over the last few years, and student loan debt is causing a delay in family formation and hence reducing first time home purchases. And yes, there are investors, but it should be easy to see that the number of investors is nowhere near large enough to make up for half of the two-thirds of buyers we’re used to seeing in our housing markets.
All told, demand for homes in the future will be significantly lower than in the past… period. And if demand is going down, prices cannot be going up… simple as that.
And, all of that ignores the elephant in the room that is the increasing numbers of foreclosures and their associated backlog, referred to as the “shadow inventory,” neither of which are capable coexisting with a recovery in housing prices.
You see, in 2011 the number of foreclosures slowed down, in some states quite significantly, but not because of borrowers becoming more able to pay their mortgages. Foreclosures fell because of banks holding back as they awaited final determinations on things like the Attorneys General national mortgage settlement, and some states, specific court decisions.
I haven’t seen any conclusive numbers yet, but I’d bet money that 2011 will look flat when compared with 2010 instead of increasing as it otherwise should have, and this will make for some deceptive statistics showing the crisis being somehow nearer its end… when it’s not. In fact, all reports already indicate that the number of foreclosures is increasing as we speak.
Here’s how Reuters reported such news on April 4, 2012…
Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.
“We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010,” said Mark Seifert, executive director of Empowering & Strengthening Ohio’s People (ESOP), a counseling group with 10 offices in Ohio.
“Last year was an anomaly, and not in a good way,” he said.
In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.
Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur.
Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January (of this year).
More conclusive national data is not yet available.
However, RealtyTrac has published estimates showing that the number of foreclosures in February of this year as compared with January’s numbers increased in 21 states and, “…jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).”
According to RealtyTrac’s CEO, Brandon Moore, the “numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed.”
Other evidence of foreclosures not happening in 2011, but set to happen this year are seen in a January 2012 report by the Neighborhood Economic Development Advocacy Project (“NEDAP”) in New York. According to Reuters, that group’s study found that…
“… in the first half of 2011 the number of 90-day pre-foreclosure notices in New York City outnumbered court foreclosure actions by a ratio of 14 to one, indicating that while proceedings were initiated against many homeowners, they were left incomplete.”
“Now the banks have a settlement, foreclosure numbers for 2012 are going to be high,” said NEDAP co-director Josh Zinner.
Reuters went on to report that…
“One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products — with high interest rates where banks asked for no money down or no proof of income — is that today it’s mostly Americans with ordinary mortgages whose ability to meet payments have been hit by the hard economic times.”
This statement, however, is really just twaddle, to borrow Chris Whalen’s word.
Other than some fringe number of truly unfortunate borrowers who bought at the worst time under the worst terms… or those that were speculating on the edge who lost homes as soon as the home loan market froze… foreclosures have always been caused by negative equity colliding with a “life event.” If you’re underwater and something bad happens… with divorce, illness/injury, or job loss being the BIG 3… you’re a foreclosure waiting to happen.
It can and does literally happen to anyone and everyone. I speak with homeowners at risk of foreclosure every day and have been doing so for over three years. I’ve seen people whose incomes were $50,000 a month for twenty years lose homes to foreclosure… and people whose incomes temporarily dropped from $3,000 a month to $2200, do the same.
Of course, it’s true that the foreclosure crisis has hit minorities harder than middle class whites, but that’s just a function of two things: predatory lending practices that preyed on lower income minorities… and people with further to fall taking longer to do so. (That’s why when people ask me if I’m losing my home I always answer by saying, “not today.”)
Life events are called “life events” for a reason… they happen as a result of life happening. And they happen to everyone… eventually.
A friend of mine who is a banker explained to me that lending is really just a game of hoping a loan is refinanced before a life event hits. If I loan you money for one year, I can charge you a very low interest rate because it’s unlikely that you’ll get hit by lightning… or divorced, laid off, injured or seriously ill… within a year. But, if I loan you money for 30 years… well, now all kinds of crap can happen that can impair your ability to repay the loan as agreed. Pretty simple stuff, right?
When Countrywide originated a mortgage, it may have said 30 years on it, but no one at Countrywide thought that the loan would be around for 30 years… in fact, they figured it would be around for maybe seven years… tops. By then it would either be refinanced or paid off when the house was sold.
But… what’s happening today? Millions of people cannot refinance or sell their homes… so, that means millions of loans are going to be around a lot longer than anyone expected. And the longer a loan is around, the greater the likelihood that a life event will show up and slap you off your track at least for some period of time. And when that happens while you’re underwater you can’t sell… so, BINGO! You’re a statistic in the foreclosure crisis… an “irresponsible borrower,” a deadbeat debtor… shhhh… whatever you do don’t tell anyone.
Tell your own mother and she may very well launch into a diatribe about how you have always spent too much on “those kids.” Tell Dad and he’s likely to lecture you about how you shouldn’t have bought the car you’re driving. Your next-door neighbor finds out and he or she will be looking in your garage for a jet ski or your living room for a flat screen television.
I’ve explained this before… in behavioral economics it’s called the “just world hypothesis.” We need to believe that when something bad happens to someone, it’s somehow that person’s behavior that caused the bad thing to happen. That’s how we make ourselves feel safe… by believing that we live in a just world. Random bad things that could happen to anyone are terrifying… like shark attacks, lightning striking… 9-11.
Our foreclosure crisis is a tragic and awful thing that has literally caused thousands to take their own lives out of shame and despair. And it’s a quiet crisis because no one tells anyone when they’re at risk of foreclosure, or when they lose their home… or when they save it through some sort of loan modification. You can’t see or feel the foreclosure crisis until it touches your life, and then you say… “I can’t believe this is happening to me… or to (insert someone you know).
Until then, you look the other way… assume that the person losing a home was irresponsible… shouldn’t have bought a home in the first place… is nothing like you.
The National Journal’s reporters, Roberts and Kaper, whose story titled, “Out of their depth,” I referenced near the beginning of this article, tells of an Obama Administration that, in their words, failed to help homeowners because it just “didn’t have the stomach for it.”
Their article starts out talking about the administration’s more recent posture as being determined to do something right about the foreclosure crisis… as follows…
“The turnabout followed three years of tepid, halfhearted, and conflicted policies driven by a desire among Obama’s most senior advisers to avoid political risks and insulate the financial sector from further losses. It was a disastrous approach that did little for a market in free fall or for the millions of Americans still underwater and facing foreclosure.
National Journal spoke with more than two-dozen sources involved in creating and implementing the Obama administration’s many housing initiatives, from Election Day 2008 to the present. The result is a story of missed opportunities, competing priorities, out-of-whack expectations, and a few subtle, yet noteworthy, successes—all impelled at least as often by political, rather than economic, calculations.
The approach remains haunted by a primal decision made almost immediately after Obama’s economic team took office. Although the federal government would spend reams of cash to stanch, to some degree, the losses suffered by the financial sector, the auto industry, and state and local governments, suffering homeowners would see no such relief, at least not on a widespread basis. Their bailout never arrived. It appears that the administration simply didn’t have the stomach for it.”
Now, first of all… no, never mind… keep going…
“Housing clearly was an area where Obama’s team thought it needed to take quick action simply to stop the bleeding. “Housing was 30 months in the hole when Obama was elected,” said Peter Swire, a member of the transition team who, after the inauguration, became one of the economic officials leading the effort. “The first goal was to stabilize.”
To its credit, Obama’s policy group recognized just how unprecedented the crisis was, and that realization helped to elevate the discussion about solutions to the highest levels, placing decision-making authority in the hands of Lawrence Summers, who would be director of the National Economic Council, and Geithner. Others, such as Housing and Urban Development Secretary Shaun Donovan and bank regulators, were called to the table inconsistently. Treasury was the department running the nation’s housing policy.
But the task was enormous—and enormously complicated. The economic team was committed to some form of government intervention, but it could find little consensus on the scope and scale necessary for that effort to succeed. Compounding the problem, the deterioration of housing markets throughout the country, and of the U.S. economy overall, accelerated between the election and Inauguration Day.”
Okay, so look… HORSEPUCKY!
The “task” as Roberts and Kaper phrase it, was not so terribly complicated that it was beyond these genius IQs’ abilities to do something right… something at least marginally effective in the eyes of America’s homeowners. They didn’t because they didn’t care to… and every single American homeowner who has paid the least bit of attention should recognize that as being the truth. My Lord… what do they need to do, come to your door and spit in your face? They didn’t because they didn’t care… and my problem isn’t even that… I could forgive them for that, somehow… not easily, but somehow.
My problem is that they still don’t care… and yes, I’m talking today… right now… headed into the election and clearly they still have learned essentially nothing about a crisis that’s plain as day, completely out of control.
And that’s just unacceptable in so many ways that I can’t talk about it without wanting to smack someone across the face… Larry Summers would do just fine… Geithner… sure, why the hell not? Obama… no. Him I want to grab by the shoulders and shake.
Amherst Securities forecasts another 9.5 MILLION homeowners at risk of foreclosure… almost ten million more coming soon to a theater near you. That’s in the neighborhood of being twice as many as we’ve had to-date… not quite, but in the neighborhood.
And why on Earth anyone with any critical thinking skills would possibly think that after another 9.5 million foreclosures they’d be over… well, it’s sheer lunacy, that’s what it is. Another 9.5 million foreclosures and the only homeowners with equity will be those who own their homes free and clear. And the closest I’d let my wife or daughter get to a bank would be the ATM at a 7-11.
Here’s what the article by Roberts and Kaper says about the two principles that drove the administration’s housing policy…
From the start, two principles would drive the housing-policy team’s debate about the form that government intervention would take. First, Geithner and Summers sought to preserve the sanctity of contracts, and that commitment determined the structure of the president’s core housing programs. The government would not force banks to modify loans, and any changes made to mortgage terms would have to work for investors as well as homeowners. Those requirements led to hours of discussion and proposal drafting around the idea of “net present value,” or NPV—a formula used to determine whether modifying or foreclosing on a mortgage would result in higher profitability for investors.
(First was “the sanctity of contracts?” How about the sanctity of accounting principles, you pompous pair of pathetic Pecksniffians.)
Now I’m not saying that there was anything wrong with the idea of a Net Present Value test, in principle… it’s in the execution that fell apart. That’s what caused Americans to lose trust in government. Summers and Geithner were simply the wrong people to execute this sort of program, and Obama should have known that by… oh, I don’t know… how about by 2010 or 2011?
And here’s their second guiding principle…
Moral hazard was the other debate driver. Having witnessed Main Street’s reaction to the Wall Street bailout under the Troubled Asset Relief Program, Obama’s team went to great lengths, time and again, to promise Americans that taxpayer money would not be used to help people who had simply purchased too much house. This was assistance built for “responsible” and “deserving” homeowners, the story went. So your neighbor got in over his head? Or a friend bought a house to flip and then couldn’t sell it? Their fault, the White House was saying. “That narrative is one we had to be careful with,” a senior administration official said.
Taken together, contract sanctity and moral hazard set the parameters for the president’s housing policy. And within four weeks of Obama’s swearing-in, his team proclaimed itself ready to unveil the sharply tailored strategy.
Okay, so there you have it. The two individuals in charge were more concerned with the possibility of helping a homeowner who “got in over their head,” which by the way they didn’t give a rat’s petute about when discussing laws to prevent predatory lending or any other restriction on mortgage lending that might stop someone from getting in over their head, but never mind that nauseating hypocrisy.
The article says something else worthy of note…
“… housing had so quickly turned from tremendous boom to disastrous bust that the mortgage industry was unable to cope. Lenders and loan servicers had never operated in that kind of environment and had no mechanism to respond to the dramatic surge in delinquencies and foreclosures. One senior administration official called the servicing system “dysfunctional” in 2008 and 2009, and an industry representative agreed. “The system was not designed to deal with massive foreclosures,” he said. “It simply was not clear what was the response to take.”
Okay, so that being the case, and I have no trouble believing that absolutely was the case… let’s not worry about what you do… instead, let’s look at what you don’t do:
You don’t announce your “sharply tailored strategy” within four weeks of being sworn in.
“A handful of core officials—at least one each from the White House, Treasury, and HUD—bought coffee and doughnuts and then wheeled chairs into an empty conference room. They listened to the loan servicers’ concerns and questions, discussed the complexity of their operations, and hammered home what servicers needed to do.
One of the main questions centered on up-front documentation: Did Treasury want the process to happen so rapidly that servicers should put mortgagees into trial loan modifications based on verbal statements alone? Yes, the officials said. Don’t worry about the documents. Just put loans into the “trial mods” and then get the documents in order before the time comes to make the changes to the loan permanent, they said. “Just do it,” was the message.”
And you absolutely don’t instruct mortgage servicers that they should just put everyone into trial modifications with no systems, no training, no infrastructure and no real solid idea of what will happen next.
You don’t do any of that. These are people’s homes you’re talking about. And sure, there were some small percentage of folks that went out and bought their homes without a contingency plan for the Great Depression Part 2 coming around the corner… and yes there were some that should not have borrowed as much as they did for any number of reasons. The proliferation of television ads and even television programs instructing people to do just that, come to mind.
Marlboro wants to run a beautiful 30-second commercial showing me a handsome man riding a horse in the snow while smoking a cigarette and the federal government loses its mind taking them off the air. But a 60-minute infomercial that provides detailed instructions and fake testimonials on how to get rich safely by borrowing 125 percent of your home’s value in order to buy condos in the middle of the desert… no problem at all, right?
And better yet, why not do so using a spring-loaded, snapping turtle-styled mortgage that requires neither down payment nor job and increases in balance owed and monthly payment whenever Greenspan feels itchy… but hey… who are we to stand in the way of the American Dream, is that about right?
And, finally this…
“They (servicers) insisted to us they could not do this program, they were not ready to do this program, and we told them they had to,” said Treasury’s Tim Massad, then chief counsel in the department’s financial stability office.
And therein lies the rub… I’m going to say something many are not going to like… I’m tired of blaming the banks alone for this mess because in large part it’s simply not their fault… this failure belongs to the Obama Administration… from start to flummoxed… plain and simple and in no uncertain terms.
And what a spectacular failure it continues to be… absolutely stunning in its completeness… in its flagrant ineptitude… in its degree of insensitivity… in its ongoing utter folly. It’s down right peerless, that’s what it is… it stands without equal.
The core problem: Estimates for both programs were based on faulty, incomplete data. “There was always a huge degree of uncertainty around those forecasts, which reflected the limitations of the data available at that time,” said John Worth, who helped design the two initiatives as director of Treasury’s Office of Microeconomic Analysis. “We were sort of building the airplane as it was trucking down the runway, because there was a real sense of urgency to deliver help to homeowners.”
Yeah, it reminds me of the real sense of urgency that must have surrounded the readying of the Space Shuttle Challenger back in 1986. I’m sure those NASA managers were in a hurry to help school teachers get into space, so they disregarded warnings about the O-rings, launching in low temperatures, and whatever else, so that the damn thing exploded 73 seconds into its flight as tens of millions of young children watched on national television.
So… bang up job there, Mr. Geithner, Mr. Summers… and President Obama… absolutely crackerjack work all around.
Admittedly, I’ve done more than my share of bank bashing over the last few years, and I haven’t been alone by any means. But, I’ve gotten to know more about the crisis from some of the banks’ perspectives, and I think we should consider what’s really gone on here.
Don’t start throwing tomatoes at me in your mind… just yet. I’m serious about this… so, hear me out.
Tens of millions of Americans saw themselves lied to and abandoned by their obviously unfeeling government, who then walked them right into the totally unprepared arms of financial institutions bound by no rules, responsible only to shareholders, as they were reeling from a crisis that had bankrupted all of the investment banks on Wall Street in one fell swoop.
Oh, don’t get me wrong… I’m not ready to give the entire banking industry a pass by any means. Fannie Mae and Freddie Mac… are certainly among the worst offenders of all. And Wells Fargo is inexplicably immoral and entirely malevolent at every single opportunity.
But, Bank of America was doing principal reductions before the ink was even close to dry on the AG settlement… I personally have seen several dozen of them.
BOA is the first to admit that it’s a long way from perfect, but I’ve seen them resolve things quickly and fairly every single time they’ve been at fault. And they have modified more than 200,000 mortgages over the last couple of years. Not enough, you say? Perhaps, but they appear to me to be an organization trying hard to make things better and get things right as they continue to deal with the now infamous acquisitions of Countrywide and Merrill Lynch.
And Ocwen has been doing principal reductions as part of their shared equity program for almost a year, as far as I know… maybe even before that. They were founded on the principal that loans should be modified before foreclosed if at all possible. I’ve even seen the executives at One West Bank jump through hoops to stop sales and get loans modified that had fallen through the cracks. Oh, and Impac Mortgage… well, they’ve always been leading the pack on the loan modification front.
I don’t think there’s any question about it… getting your loan modified is much easier than it was two years ago, or even last year… unless you’re with Wells Fargo, of course.
Conversely, what have I seen from the Obama Administration? Nothing but intermittent lip service and an ongoing stream of ill conceived, half-hearted programs, each entirely predictable as to its ultimate failure.
On January 15, 2009, Larry Summers made a written commitment to spend $50 to $100 billion on, “a sweeping effort to address the foreclosure crisis.”
And yet… as of the end of 2011, the administration had spent less than $3 billion on a situation their chief economic advisor acknowledged to be a “CRISIS” almost three years earlier… without so much as an apology to those whose lives their inaction had ruined.
Dodd-Frank made $1 billion available for an emergency program that was purported to help those unemployed people in their homes. But, the money had to be out the door by a specific date and HUD delayed issuing application requirements, which left potential beneficiaries with only weeks to assess qualifications, apply, and submit the necessary paperwork.
And that was a $1 billion “emergency program” to help the unemployed save their homes. If HUD handled medical emergencies, everyone would die.
It’s hard to imagine, but even with a presidential election coming up, an election in which the winner must carry such foreclosure-riddled swing states as Ohio and Florida, there’s just more and more and more and even more… and none of it good as far as the Obama Administration is concerned… and yet the administration appears wholly unconcerned.
The Attorney General settlement with the five largest servicers is another example of a cowboy that’s all hat and no cattle. To listen to the Obama Administration, it’s an important settlement, meaningful to the homeowners in America, many of whom… according to the administration, were foreclosed on either illegally, fraudulently, or improperly… it’s kind of hard to tell which.
Regardless, if the homeowner lost a home to foreclosure between 2009 and 2011, they are said to be receiving between $1,500 and $2,000 as compensation for some unspecified degree of improper or fraudulent foreclosure having taken place.
The absurdity of this component of the overall settlement was not lost on anyone, even for a moment, and in Obama’s typical fashion, he held a single press conference, said some great sounding things about justice for homeowners and making banks pay, and we haven’t heard from him on the subject since.
Meanwhile, if you really did lose a home to a wrongful foreclosure, you now know no one cares, as two grand is hardly compensation for losing a home that shouldn’t have been lost. And if you didn’t lose your home improperly, then you just got two grand for absolutely nothing. As settlements go, this one managed to do something not often seen… it managed to please no one, and since it hasn’t even begun to disperse checks, no one is even sure how the whole thing will or won’t work.
The only thing that’s certain about the settlement is the level of skepticism present among homeowners, and that’s either being expressed through jeers or barbs.
The problem with the whole “fraudulent or improper foreclosure” aspect of the crisis is that it’s not helping homeowners, in fact in many instances its caused more harm then good.
For one thing, it’s driving false hope. For another, it’s driving bad decisions.
Even when used successfully as a defense in a foreclosure proceeding, the improper signing of affidavits or assignments has proven itself, at least in the vast majority of instances, to at best result in a delay. The servicer attempting to foreclose may be forced to re-file with proper documents, but they almost always do… and the foreclosure proceeds in almost every single case.
More importantly, however, the use of improperly signed documents as a defense in a foreclosure is more often than not, simply ineffective from the homeowner’s perspective. No delay is granted and the foreclosure proceeds as if the documentation was flawless. Judges simply care more about a borrower not having made a payment in two years than who signed the assignment of the deed of trust.
Foreclosure defense lawyers all tell me that they raise issues pertaining to document signing as they might visit any port in a storm… hoping to gain some leverage that leads to their client’s loan getting modified. None seem to believe that borrowers are truly damaged by such improper signing, and most judges evidently agree.
The moral of the story about foreclosure defense is that, in almost all cases, if you haven’t made your mortgage payment for a couple of years, the safest path to saving your home is through a loan modification. And don’t shoot the messenger, but if you’re trying to save your home… you should also be saving money.
You may need the money to save your home, and even if it turns out that you don’t, once your situation gets resolved, you’ll definitely need a vacation so having extra money saved is a no lose proposition.
The other problem with our current fascination with who signed what is that it’s driving homeowners to buy forensic loan audits, securitization audits and countless other reports of questionable value to those trying to save homes from foreclosure. They find out that something was done improperly and think that it means that they can use it to save their home from foreclosure. In almost every single instance, they find out they were wrong… and by then, it’s too late to get their loan modified.
My point is that these are the facts… the unpopular and perhaps unfair facts that are the result of the Obama Administration’s handling of the foreclosure crisis. You can continue to blame the banks and mortgage servicers if you want to, but their role has never been to ensure societal fairness… they are, after all, bill collectors and as such they are responsible to their shareholders and investors… not to you or me as delinquent borrowers.
When you want companies to all do something that’s not in their financial best interests, that’s when government has to step in. For example, if you want cars to have safety belts or catalytic converters, you don’t just leave it to GM, Chrysler and Ford to figure it out… you pass legislation that mandates the adoption of such things because its been decided that they are for the good of our society.
That’s precisely what the Obama Administration has failed to do during this crisis… mandate what is best for our society, and instead its just been left to the for profit corporations to figure it out for themselves. And we’re surprised that didn’t work? Really? Why? Who thought it would, besides Larry Summers and Tim Geithner? Because for sure I could have told them it wouldn’t… saved everyone a lot of aggravation, to say nothing of several trillion dollars.
We tried the same thing during the Great Depression of the 1930s… a voluntary loan modification program, I mean. It’s true. Didn’t work then either, and the St. Louis Federal Reserve has a paper all about it. Do you think Geithner and Summers missed reading it?
It’s year six of the most severe balance sheet recession that this country has experienced in 70 years and once again we’re right in the middle of our annual faux recovery.
The global credit crisis that ended our housing bubble in 2007 left us with housing prices in a free fall and a growing foreclosure crisis about which essentially nothing has been done, or at least nothing has been done right. The result of the collapse in credit card availability and home equity have left American consumers with only two options: default or attempt to repay massive debt burdens.
We’ve seen something like $10 trillion in accumulated wealth evaporate, mostly in the form of lost home equity, and so it should come as no surprise, except to economists unable to see things beyond their charts and models, that consumer spending as measured by consumption has gone down enormously since 2006.
Simply put… we are earning less today because we are consuming less today.
And yet, we continue to ignore or mishandle the foreclosure crisis that is clearly THE ISSUE that prevents any sort of economic recovery from talking hold.
That’s not the fault of banks and mortgage servicers… and it’s not the fault of courts failing to prevent foreclosures based on improperly signed documents used in the foreclosure process. Clearly, this monumental failure belongs to our elected officials in federal and state governments… and to the policy decisions made by the Obama Administration.
Again, I’m not saying you should vote for Mitt Romney… or that you should vote for Barack Obama, for that matter. What I am saying is that we should not be tolerating any more of what we’ve been fed since the crisis began, because for six years we’ve been told things about our housing markets and the impact of foreclosures that have been proven repeatedly to be wrong and by a long-shot.
As 2008 began, the Congressional Budget Office (“CBO”) forecasted that the budget deficit in 2009 would be just 1.4 per cent of GDP. As it turned out, 2009’s budget deficit skyrocketed to 10 percent of GDP. (And to the CBO I would just like to say… “Thank you for playing.”)
The cause of the dramatically increasing deficit in 2009 is found in the fallout from the housing bubble… not irrationally exuberant spending programs and not excessive tax cuts. The CBO’s 2008 forecasts were obviously made before our government understood the impact that the housing bubble’s collapse would have on the economy. The question is, do they understand it even now?
According to a disturbing recent study, while during the Clinton Administration the top one percent got 45 percent of our economic growth and during the Bush Administration that affluent group got 65 percent of our growth… in 2010, the top one percent picked up an unconscionable 93 percent of the gains in that year… and 37 percent of the gains went to the 15,600 uber-rich households that make up the top one-tenth of one percent.
So, very well done there.
Perhaps even more alarming, there were no gains at all for those in the bottom 90 percent, and in fact, this sizable group has seen their average annual adjusted gross incomes fall by $4,843 since 2000 to $29, 840 (adjusted for inflation, by the way).
Don’t be confused by any of this, once again, the culprit is housing. If you’re in the top 10 percent club, you’re doing well in large part because of your investments in the stock market, which saw an increase in value of $1.46 trillion in the fourth quarter of 2011 alone.
But, if you’re in the bottom 90 percent, chances are you don’t own a whole heck of a lot of stocks… for you it’s your home’s value that makes up the lion’s share of your wealth, and home prices once again fell in 2011. The median home was worth 6.2 percent less in February of this year as compared with the prior year. And yes… if you haven’t figured it out yet, home prices are still falling with no end yet in sight.
According to a recent article on Bloomberg/Businessweek, “Home prices seen dropping 10% in U.S. on Foreclosures”…
“A lot of people look at bumps in the monthly data and say we’re reaching a bottom,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “We won’t be there until this supply of foreclosures clears.”
It’s also worth noting that the sinking housing market has hit minority households much harder than whites. According to the Pew Research Center, Hispanic households have lost 66 percent of their net worth during the recession while whites have endured only a 16 percent loss.
Fed Chief Ben Bernanke says our economy needs to grow faster in order to reduce unemployment, and thank you Professor Bernanke for that brilliant insight. But, as former labor secretary Robert Reich pointed out recently…
“We can’t possibly grow faster if the vast majority of Americans, who are still losing ground, don’t have the money to buy more of the things American workers produce. There’s no way spending by the richest 10 percent – the only ones gaining ground – will be enough to get the economy out of first gear.”
All of this should paint a clear picture… even under the most optimistic set of assumptions we’re not looking at any sort of real recovery… the kind you can feel as well as read about… being a possibility this year… and not next year either… or even during the year after that. Our accumulated wealth has been stripped, and Bernanke can lower interest rates until he literally can’t and we’re still going to save for quite a while before we spend again.
Economists point out that savings rates are only hovering around 5 percent, but you have to consider that represents savings at roughly zero interest.
Of course, at some point rates will have to rise, and while some point out the benefits that come along with higher rates, I’m pretty confident that the Fed Chief is in touch with the concept of what will happen to the millions of underwater adjustable rate mortgages when rising rates make for higher monthly mortgage payments that cannot be refinanced. Get ready, ‘cause when rates do rise, there’ll be a whole new group of the “irresponsible,” arriving on the scene.
Where the crisis will meet the people… all the people.
On “AUSTERITY STREET.”
Allow me to offer you a glimpse into the future… the near future… as in a year or two from now when the foreclosure crisis will collide with the realities of state budget deficits, which are the kind of budget deficits that can’t be addressed by printing money.
Remember President Obama’s very first bill… the economic stimulus bill that finally passed with a $700 billion price tag, but ended up stimulating almost nothing, economically speaking? Well, it may not have accomplished what the administration wanted it to, but it did accomplish something. It provided roughly $500 billion for the states, which is why we haven’t had any state budget crises making headlines over the last couple of years.
Well, guess what? The money’s gone… there was something like $6 billion left going into this year. But, the states fiscal problems are still very much around.
According to the Center on Budget and Policy Priorities…
The Great Recession that started in 2007 caused the largest collapse in state revenues on record. As of the third quarter of 2011, state revenues remained 7 percent below pre-recession levels, and are not growing fast enough to recover fully soon.
State budget estimates for the upcoming fiscal year show that states still face a long and uncertain recovery. For fiscal year 2013, thirty states have projected shortfalls totaling $49 billion.
Meanwhile, states’ education and health care obligations continue to grow. Some 5.6 million more people are projected to be eligible for health insurance through Medicaid in 2012 than were enrolled in 2008, as employers have cancelled their coverage and people have lost jobs and wages.
Extremely large shortfalls addressed in recent years have led to deep cuts in critical public services like education, health care, and human services; the new shortfalls likely will prompt legislators to make further cuts in those areas on top of those already enacted.
So state budgets are poised to continue to be a drag on the national economy, threatening hundreds of thousands of private- and public-sector jobs, reducing the job creation that otherwise would be expected to occur.
These shortfalls are all the more daunting because states’ options for addressing them are fewer and more difficult than in recent years. Temporary aid to states enacted in early 2009 as part of the federal Recovery Act allowed states to avert some of the most harmful potential budget cuts in the 2009, 2010 and 2011 fiscal years. But that aid expired at the end of fiscal year 2011, leading to some of the deepest cuts to state services since the start of the recession. The federal government is now moving ahead with spending cuts that will very likely make states’ fiscal situation even worse.
Unfortunately, the hole is so deep that even if revenues continue to grow at last year’s rate — which is highly unlikely, it would take seven years to get them back on a normal track.
Continued slow job growth will restrain the rise in state tax receipts. This is especially true for the sales tax. High unemployment and economic uncertainty, combined with households’ diminished wealth due to fallen property values, will continue to depress consumption, keeping sales tax receipts at low levels.
Spending cuts are problematic during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. This directly removes demand from the economy.
Tax increases also remove demand from the economy by reducing the amount of money people have to spend. At the state level, a balanced approach to closing deficits — raising taxes along with enacting budget cuts — is needed in order to maintain important services while minimizing harmful effects on the economy. Ultimately, however, the actions needed to address state budget shortfalls place a considerable number of jobs at risk.
Want to know what all of that refers to in a nutshell: AUSTERITY.
As the states cut services and programs, people feel them from the bottom up, and the deeper the cuts get, the bigger their impact on our society. For example in California and Florida over the last two years, state college tuitions have risen by roughly a third… that’s a 33% increase in the cost of going to college, and it means that many students won’t be attending as planned.
This is life-altering stuff, and the impact to states can last for decades.
The foreclosure crisis is only making the picture bleaker each year, as spending drops, so do sales tax receipts, and as property values fall, so do property tax receipts.
So, we cut services available to those near the bottom of the economic ladder, and raise taxes on those at the top. Together, although budget deficits are closed, the impact causes more harm to the economy, thus making recovery that much further away.
The situation is dire for many, if not most states. It isn’t a hypothetical scenario, or a potential one… it’s our very certain reality in the years just ahead. This is where everyone starts to feel the pain, and in the most extreme situations… it’s Greece.
The National Journal story I’ve quoted throughout this article, wrapped up with the following statement from former FDIC Chief Sheila Bair… (Warning: You may want to bite down on a pencil before reading what Sheila has to say. The first time I read it, I bit my tongue and couldn’t eat salsa for almost a week.)
“I think the president really wanted to do something aggressive and meaningful here, and I just think Larry and Tim were not as committed to it,” the FDIC’s Bair said. “It was not a priority for them. They were focused on the big financial institutions. I think they just wanted to get a program and a press release out to make the president happy.”
If that doesn’t say it to you… I’m not sure what else would.
We need to let our elected officials know that we will no longer tolerate pointless inaction caused by inane debates over such things as “moral hazard,” and the selective preservation of the sanctity of contracts.
If the federal government can handle the unbelievable amounts of moral hazard they’ve created with TBTF, they can certainly handle someone getting help under less than ideal circumstances SIX YEARS into the bungling of the crisis.
And as far as the sanctity of contracts goes, if they can deal with pretending the maturity dates on commercial mortgages haven’t arrived when they have, surely they can recover from making some new rules under such extreme circumstances. After all, they figured out how to have Japanese-Americans hauled off to internment camps in Utah during WWII.
We need to let them know that we hold them responsible for what’s transpired, because we do listen to what the President of the United States says to the American people… in fact, we were under the impression that once elected it’s to be considered more than a campaign speech.
Decisions made by Larry Summers have been disastrous for this nation… that much is abundantly clear. Tim Geithner’s been no peach either. Together their folly has cost our country incalculable amounts of money, but further, they have caused people to take their own lives. Geithner must resign. Summers should be banned from the economics profession for life. Both should be sentenced to three years selling shoes at JCPenny. Repeat after me: “Would you like to see that in a pump or a loafer.”
I don’t want to get funny about this… I mean every word of what I’ve said here. While we are begging for crumbs off of Linda Green’s table, stomping our feet because Wells Fargo won’t change, it is our government that has created this mess… our government who said they’d done something to solve it… and our government who has obviously failed.
So, fix it… damn it. We won’t tolerate anything less. We want accountability, and if we are not listened to, we will have your seat in public office.
And maybe we can’t get all of them… but we can get some of them. And I’m thinking maybe that’s enough.
Mandelman out.
So, do you remember the article I posted the other day about accounting for a pool of loans and how values are based on assumptions about the performance of the pool into the future? It was really Part 1 … meaning you should read it first… and it was called…
“If We owned a pool of loans, would WE allow principal reductions?“
It’s complexity we eschew, and everyone’s welcome at Mandelman U.
I thought it might be exciting if I showed you something very few people have ever seen… an honest to goodness peek behind the curtain, if you will.
What follows below are slides from an actual presentation of a Residential Mortgage-backed Securities – RMBS/REMIC deal… but NOT the slides from a “road show” presentation to potential investors… what you’re about to see are slides from an INTERNAL meeting that was actually held back in February of 2006 when WMC Mortgage’s management presented the company’s second RMBS securitization deal to the management from parent company, GE.
And it’s not a proposal being presented to GE’s management… it’s an explanation of a deal WMC had already closed back in late 2005, the mortgage subsidiary’s second such deal… “GE-WMC 2005-2.”
By the way… WMC’s history is fascinating squared. Want to know it? Okay, follow me…
Weyerheuser Lumber Company had a finance company they called Weyerheuser Mortgage Company, or WMC… and they sold it in 1997 or 1998 for $192 million to a company called Apollo Global Management, which was founded by Leon Black in 1990, and today manages an estimated $100 billion in assets. And although you’ll never find it in print, much less prove it in court… the rumor on The Street has always been that Leon’s “silent partner” in Apollo… none other than Michael Milken.
If you’re old enough to remember the first bubble that wiped out your retirement savings, then you’re old enough to remember Leon… he was the Managing Director – of Mergers & Acquisitions at Drexel, Burnham & Lambert… although he didn’t make a stop in federal prison as did Mr. Milken, before getting into the mortgage business and going on to become a billionaire several times over. By the way, it might interest you to know that Mike Milken’s son, Lance Milken, still works at Apollo. Perhaps it was decided that young Lance needed some mentoring, and who better than Leon to make sure his career went swimmingly?
(And I’m not beating up on Mr. Milken, I’m just jealous of Lance. What? Yeah, like you’re not.)
Okay, here’s my favorite part of the story… Leon’s net worth reportedly fell to just $1 billion after the 2008 market meltdown, but before you shed any tears… in the BOOM years since then… he’s done quite well and by 2011, was reportedly right back up to a net worth of $3.5 billion… proving that you just cannot keep a good man down.
So… after Apollo Management acquired WMC, they started adding value primarily by mandating the liberal use of GE-inspired-jargon and redecorating their offices with Six-Sigma-drapes and other window dressings, purchased after a three-hour presentation using a 450 slide deck of Power Point slides… with a corroborating opinion from McKinsey, of course.
And wouldn’t you know it, in 2004, Apollo had no trouble selling WMC to GE for $650 million, thus giving the mortgage company access to the virtually unlimited capital of Wall Street’s darling-of-those-days, the triple A rated… GE, then under the leadership of Jeffery Immelt. You’ll notice when you look at the cover slide of the presentation below, that the name of this securitization deal is “GE-WMC 2005-2,” and WMC Mortgage called itself, “A GE Money Company.”
Back then, if you didn’t already know, GE was a BIG deal… one of only 7 companies in the country with an AAA credit rating. It’s interesting, because if you go back to the early 1970s, there were 60 US companies rated AAA… fast forward a decade to 1982, and that number had been cut in half to 30. By the early 1990s, we were down to just 20 AAAs, and at the dawn of our new millennium you could count America’s AAA-rated companies on two hands even if you’d lost a finger… only 9 remained.
A precious 7 of our AAAs managed to make it to 2009… when the list bade farewell to two companies that no one ever thought would go… Warren Buffet’s Berkshire Hathaway and the venerable GE itself… were both downgraded to a relatively disgraceful… AA.
Yes… Tommy Edison’s electric candle company, that had been the first to bring good things to light… one of the original 12 companies that made up the Dow Jones Industrial Average, and the only one of those 12 still part of the Dow today… along with the Oracle of Omaha’s private mutual fund they call Berkshire Hathaway… yes, they both fell from grace at the hands of irresponsible sub-prime borrowers during the housing bubble.
(In case you’re wondering, the remaining five are Microsoft, Pfizer, Exxon-Mobil, Johnson & Johnson and ADP.)
When GE purchased WMC in 2004, all that WMC did was “whole loan sales,” meaning that it would loan out money for mortgages, and then sell the loans to Wall Street investment banks, who would package and securitize those loans.
So, basically, with GE’s essentially unlimited and AAA-rated access to cheap cash, each month WMC would get, let’s just say, $100,000 from GE, which it would loan out on a mortgage, and then sell that loan to Wall Street. In the beginning anyway, that $100,000 loan would sell for $106,000… then later for $105,000… and then for $104,000… $103,000… $102,000… $101,000. Near the end… before such loans couldn’t be sold to Wall Street at any price and WMC shut its doors during the Spring of 2007… it went all the way down to 25¢ on a hundred dollars, which I think would make the sale of a $100,000 loan… $100,025.
Okay, so you want to see how this sort of thing happens? Follow me and I’ll show you.
Leon Black received his undergraduate degree from Dartmouth College in 1973. Jeffrey Immelt graduated from Dartmouth College too… but five years later in 1978. No reason to think they knew each other back then, five years is a big difference at that age. Leon then got his MBA at Harvard Business School in 1975. Jeff got his MBA from HBS too… but seven years later in 1982. No reason to think they knew each other at that time either… seven years difference is a long time. I have no idea, for example, who graduated from one of my alma maters seven years before or after I did.
But then, in 2000, Jeff Immelt became GE’s CEO, after the legendary Jack Welch stepped down. That’s a BIG JOB to be named CEO of GE… especially to follow the larger-than-life, Jack Welch… awfully large shoes to be filled there. In 2000, to be named CEO of GE… well, you might as well have been named King of American Conglomerate-land.
Interesting though… that in 2002… Leon Black became a member of the Board of Trustees for… wait for it… oh yes… Dartmouth College.
Now, in case you have never considered the job description for members of the Board of Trustees at a college or university… you can be sure there’s some fund raising involved… not let’s hold a raffle fund raising… I’m talking BIG TIME fundraising… the kind of fundraising one does by calling on alums who have made it to the top. And nothing says, “the top,” like the C-suite at GE.
And it’s just two years after Leon joins Dartmouth’s Board… and Leon’s company, Apollo starts dressing in Six Sigma garb, that WMC is acquired by GE for $650 million. And you don’t have to be Inspector Clouseau to figure out what went on there, do you?
(Leon… you totally rock… I am not worthy.)
If you imagine WMC selling just one of those $100,000 loans to Wall Street every month for one year… for let’s just say $106,000… you’ll quickly see why the mortgage origination business became Wall Street’s version of a Cash Call Payday Loan. Do the math… $6,000 a month… equals $72,000 a year… by loaning the same $100,000 twelve times and selling all twelve loans to Wall Street bankers.
I know, I’m over-simplifying, but I’m also correct when I describe that as making 72 percent on your money with no appreciable risk. Of course, WMC also had to keep the lights on, no pun intended… but we haven’t even talked about loan origination fees and other “closing costs,” that always find their way into a mortgage transaction.
The first slide is to show you the overall structure of the deal… remember the one I was describing in the last article on pool accounting I said was an over-simplification? So, now you’ll see what happens when some complexity is added…
GE-WMC 2005-2 Deal Summary Remic Chart
Okay, next we’ll take a look at how the deal was rated by Moody’s, Standard & Poor’s and Fitch, related to its “tranches,” which is French for “slices,” in case you’d forgotten. This deal had 17 tranches, by the way, so on this slide they’ve been condensed… in a minute you’ll see them in an expanded view.
Follow my directions, and I’ll point out and explain in simple terms, everything of importance on each slide.
Start on the left side of the slide. Look at the first line of the chart and you’ll see that between 75.4 and 77.5 percent of the deal is rated AAA (S&P) and Aaa (Moody’s). I looked it up here and this means that roughly three-quarters of the RMBS certificates in this deal were supposed to have a .52 percent chance of defaulting. That’s about a one-half of one percent chance of default, which admittedly would have to be considered a pretty darn safe investment, but it also highlights one of the many fallacies at work in these deals. U.S. Treasuries are also rated AAA, but U.S. Treasuries are treated as “cash,” with essentially no chance for default. So, how can anything less be rated the same?
From there, scan down and you’ll see AA+/Aa1. AA+/Aa2 and so on… and all the way down past the BB+/Ba2 you’ll find a line identified as being O/C… and that stands for “Over Collateralization,” and if you recall, at the end of my article on how we valued loans in a pool based on expectations, over collateralization consists of things like extra loans in the pool, and/or cash, and was done to make triple A investors feel that much more secure that they still wouldn’t incur losses even if loan defaults turned out to be higher, or happen sooner than expected.
And you know why, right? Investors don’t receive the amounts designated as O/C, nor are they paying for the amounts of O/C when they buy their certificates. The over collateralization amounts are purely there to absorb first losses, especially those that occur in the first two years that could easily be the result of fraudulent reps and warranties about underwriting standards. If all loans pay as agreed, the O/C amounts will be returned to the issuer, in this case… GE-WMC.
Now look at the right-hand side of the slide and you’ll see the first bullet… “Higher O/C equals less up-front cash and higher back-end residual,” and that sentence is telling GE’s management that because of the over-collateralization in this deal, GE will receive less cash from selling certificates to investors, but in exchange can expect a larger back-end payout.
Just so everyone understands… and this is REALLY IMPORTANT to your education here at Mandelman U...
I realize that on the last slide, you might have noticed indications that millions in cash payments were going here and there, but you’d never be able to figure out much of anything from trying to follow the amounts and arrows on that diagram.
So, I can tell you that in this specific deal there was $46 million in O/C cash, which initially represented 3.25 percent of the deal. But that doesn’t mean that WMC or GE wrote a check for $46 million.
The $46 million in O/C could be some cash… it could also be generated by some extra loans in the pool. But, it could also be handled as a claim against excess interest that’s been built into the deal’s assumptions… remember the “assumptions about the future of the loans” from my last article on valuing loans in a pool? Well, if you change a few assumptions, you’re financials would show some excess interest payments and you could consider those amounts when calculating the amount of O/C as well… get it? Just lower an assumption about loan prepayments for the pool… or lower the number of expected defaults, or reduce the loss severity associated with defaults… reduce the amount of any of those forecasts and presto… extra cash in the deal that can be classified as O/C.
See… isn’t accounting fun?
This specific deal was structured so that during the first two years there would be a relatively higher amount of O/C than after the first two years had passed. Ostensibly, that was done to create the appearance that the triple A investors were being protected from the sort of early loan defaults that would have to be the result of shoddy underwriting or even fraud. You know… like in case WMC was lying in their representations and warranties about the underwriting of the loans.
So, with the high O/C during the first two years, I’m sure investors felt safe as far as being protected from WMC just packing this deal with loans that would never make a payment or default in year one or two. After two years of making payments, one could no longer blame a loan that defaults on its originator. Loans that default after two years, result from life events and other factors that are beyond what a loan’s underwriting could reasonably foresee or prevent.
To illustrate all of this, this deal provided that GE would receive $28.5 million from the O/C at month 26, assuming no “triggers” had already required that money to be used to absorb early losses.
The next bullet states that WMC believes that they’ve made some progress convincing Moody’s that their loans were of such high quality, that in the future they wouldn’t need as much O/C to get the ratings they needed to make the deal attractive… which was obviously included to please GE management about the potential for future deals to require less cash.
The next heading is telling GE management that it’s the same process that they’ve used successfully in the past when they only sold whole loans, and again this is included as a warm and fuzzy for GE management.
And lastly, on that slide… there are a couple of points about split ratings.
A split rating occurs when the same bond is rated differently by rating agencies. For example, a bond could be rated AAA by one agency and AA or A, by another. This can occur because one rating agency places a different amount of emphasis on certain variables, or because one agency views something about the issuer differently than another… perhaps a recent acquisition by the issuer is seen more or less favorably.
Split ratings also occur simply because the different ratings agencies each handle ratings differently… S&P ratings are said to measure the probability of default… Moody’s, on the other hand is said to be measuring the amount of the expected loss in the event of default.
(Think car insurance for a moment… S&P would rate me as a driver with emphasis placed on the probability of me having an accident… while Moody’s would base my rating primarily on the cost of the car I was driving.)
It’s a slightly different perspective on what’s most important in a rating, and you can see why investors want to trade based on Moody’s… they’re concerned with how much they might lose. The Basel Accord, by the way, is seeking to mandate that BOTH perspectives be provided to investors… leave it to the Europeans (who originated Basel), to introduce common sense to Wall Street.
In this deal, and remember this is referring only to the non-investment grade bottom tranches, rated BBB- and below… it says that the “tranches trade at Moody’s rating,” but the second bullet says that these tranches have already been priced as if the ratings were dropped, which appears to protect the investors.
GE TRANCHES
The next slide shows you all of the different investors that bought pieces of this deal, and because this presentation was used by WMC to show its parent company, GE, just how fabulous everything was… the slide’s title reads: “Strong Investor Demand.”
The column on the left shows who bought the AAA/Aaa tranches, in the middle you can see who who bought the “Mezzanine tranches,” which those in “the biz” would just call “the mez.” The column on the right shows investors in the various ‘B’ rated tranches, and below that is a list of those that bought the unrated “NIM,” or some would say, the “equity tranche.”
The “NIM” refers to the securitization of the excess or residual cash flows from one or more mortgage-backed or asset-backed security, which mostly come from the spread that exists between the interest rate on the mortgage-backed security… and the interest rate on the underlying pool of mortgages… the amounts that are not needed to absorb losses or increase the amount of credit enhancement in the underlying deal or deals.
Years ago, those issuing mortgage-backed securities earned this excess interest as the mortgages aged over time, but we should all know by now that Wall Street hates waiting for anything, least of all money that might otherwise be pocketed today. So, once again, thanks to “financial innovation” and/or “market efficiencies,” issuers discovered that they could securitize their residual interests and sell them to investors… and the NIM… or “Net Interest Margin” bond was born.
NIMs became a fast growing sector in the home equity and mortgage market because they traded at much higher yields than bonds with similar ratings… back in 2002, we’re talking 8-9 percent.
One reason NIM bonds could be sold to investors was that companies like Radian Group Inc. started providing “credit enhancement” for NIM bonds. In 2005, for example, Radian’s 10-K showed the company had written $99 million of default insurance risk on NIMs. (Radian’s peers include PMI, MGIC, Ambac, et al.)
NIMS in the 1990s v. after 2000…
Because the cash flows into NIMs are subordinated to the needs of the deal… meaning that NIMs take the first losses, or that the excess cash generated may be needed to increase the amount of credit enhancement in the deal… the volatility of prepayments that could occur when interest rates fell, and/or the timing and severity of losses resulting from defaulting loans, often had a huge impact on a NIM’s performance. (Now do you see why prepayment penalties were invented? To protect bond holders, but especially the NIM bond holders because they take the first loss.)
Certain “triggers” were written into these deals that would change how cash flows would be allocated and therefore impact the amount of excess spread that would be allocated to the residual holder. The two most common cash flow triggers used were a “delinquency trigger,” and a “cumulative loss trigger.”
Such triggers might require an increase in the targeted amount of O/C (over collateralization, remember?) These were known as “step-up” events. Or, a trigger could prevent a release of O/C… in which case it would be called a “step down” event.
Some triggers are considered to be “NIM friendly” triggers because they don’t allow for an increase… or “step-up” in O/C, above whatever initial amount of O/C was in the deal, and/or because they didn’t come into play until the step-down date. But other deals had more onerous triggers that could cut off cash flows to the NIM by prohibiting any decrease… or “step-down” in the amount of O/C, or by requiring an increase in the amount of O/C once triggers were hit.
Now, don’t get overwhelmed by this stuff… it isn’t hard to get… read it again slowly if you’re feeling overwhelmed. The concepts are simple, it’s the terminology that takes some getting used to, I understand.
The financial services industry, and especially the bond market in my opinion, goes out of its way to make things sound like you need one of their experts to decipher a secret code in order to participate in the race to riches. But the truth is… it’s all about debt. Someone is loaning money, someone is borrowing money… maybe someone else is insuring that something will happen, or betting that it won’t… and several different someones are setting up the deal, managing the deal, or selling the deal.
It’s like my favorite line from the movie “Bull Durham.”
“This is a very simple game. You hit the ball, you catch the ball, you throw the ball. Sometimes you win, somethings you lose, and sometimes it rains. Think about that for a while.”
The Investors in this Deal…
This slide is going to be fun, I promise…
Start top left… under the heading “Investor.” See it… FHLMC… Federal Home Loan Mortgage Company… otherwise known as good old Freddie Mac. Out of roughly $1.4 billion… Freddie bought $319.3 million of the Aaa-2yr, and by the way… the FHFA is currently suing GE, and all the GE companies, Morgan Stanley (the deal’s ‘adviser’), Credit Suisse (co-manager and underwriter), et al.
Just so you know… as a result of the FHFA’s suit… the U.S. Attorney for the Northern District of California convened a Grand Jury, and the FBI is currently investigating to determine whether a crime has been committed. So, now… with these slides… you can follow along and play the Mortgage Securitization Fraud Game at home.
Then we’ve got other investors you’ve heard of… Chase, PIMCO, BGI, the Agricultural Bank of China… HSBC London… Alaska Perm Fund… and just keep reading down the list and you’ll find BofA, JPMIM is a JPMorganChase… Societe General (don’t try to pronounce it, you’ll only butcher it… just say “Sock Gen.”) and then Fortis, Wharton… and it’s not “Robobank,” it’s “Rabobank,” although calling it “Robobank” is much funnier. And remember… the amounts shown are in millions.
Then go down the middle column and see who’s there… Munich RE is an re-insurance company… Teachers, is the Teachers pension plan… Hyperion, which is a hedge fund… Hartford, insurance again… Highland Capital is another hedge fund… towards the bottom of the middle column, see “FIDAC- Annaly?” Yeah, well they have a bunch of brand names, but they packaged and sold Collateralized Debt Obligations or CDOs, so they were probably buying the “Mez” in this deal to make it into a CDO, or CDO-squared… as were many of the others as well. (After we’re done with the MBS portion of our class, we’ll move to CDOs.)
And notice the one labeled, “U/W Purchase?” That’s Credit Suisse First Boston, or CSFB… this deal’s underwriter showing the other investors how much confidence they have in the deal by buying in at $12.6 million.
Then in the column on the right… the investors in the “Sub Tranches,” including Ellington, a hedge fund in San Francisco… JPMIM again, or JPMorganChase… Eurohypo, a German bank… Princeton, the university’s investment fund… Citi London… Fischer Francis is a fixed income investment management firm… Deerfield is another hedge fund… BUT STOP on C-Bass for a moment, because C-Bass was this deal’s loan servicer.
C-Bass, which stands for “Credit Based Asset Servicing and Securitization,” was basically a securitization advisor until they bought Litton Loan Servicing, which they sold to Goldman Sachs in 2007, and who sold it last year to Ocwen. MGIC, a monoline insurer, owned 45.5% of C-Bass… and MGIC’s competitor, Radian ALSO owned 45.5% of C-Bass. It’s so clubby.
C-Bass filed bankruptcy in 2010, and why not? The company’s filing listed assets of $10 to $50 million… and debt… OMG at over $1 BILLION.
You’ve got to love these guys…
I mean, if you’ve only got $10 million… and you can go bankrupt for a BILLION… I say you win. By the way… the CEO of C-Bass was a Goldman Sachs alum… and his partner came from Citigroup.
Just above the NIM you’ll see that GE-WMC bought in as well, which is another way to make investors feel like they’re not being viewed as a fatted pig that’s about to be served with an apple in its mouth. As in… “Look, Tom… they’re investing in it too… it must be safe, right?”
Okay, finally there’s the investors in the NIM. There’s Amaranth, a hedge fund… MKP, alternative investment advisers… and on down the list of mostly hedge funds that were all greedily swinging for the fences by investing in the deal’s un-rated, but crazy-high-yield, NIM bonds.
Now let’s talk about the question, “Who owns my loan?”
The answer you often hear is, “the investors,” but you should be at least starting to see why that’s not a particularly helpful answer, right? I mean, which investors? This deal has 17 tranches, and 70 investors, although some are duplicates because the same company bought into more than one tranche. And some of the investors are hedge funds, while others are buying in order to repackage what they bought into a CDO that they will be reselling.
So, who is the investor? Well, not only do you heave to think in terms of which one? But, depending on the tranche they bought, they may be receiving payments… or they may have already been wiped out by losses and that depends on the timing and the triggers and the over collateralization, or O/C, etc. etc.
And, let’s just say that we’re talking about one of the investors in the deal’s NIM bonds, and let’s say that investor has been wiped out due to losses resulting from loan defaults… but maybe that investor had purchased default insurance from Radian… then what? Does that mean your loan was paid off when that investor’s NIM bonds defaulted?
Obviously, the answer is no. Keep in mind, the deal we’re looking at was approximately a $1.4 billion dollar deal. At the bottom right of the chart below, you’ll see that Citadel… a hedge fund… was an investor in the deal’s NIM bonds to the tune of $1.3 million. Should those bonds default, assuming Radian had insured Citadel’s interest, Radian would be responsible to make the remaining bond payments with interest to Citadel.
However, even that simplified example assumes a lot.
The insurance companies that offer this type of insurance are known as the “monoline insurers,” because in 1989, the State of New York enacted Article 69, which amended the state’s insurance law to make “financial guaranty insurance” a separate line of coverage, and the new law prevented other types of insurers, such as property and casualty, life, and multiline insurers, from offering it. For years, the monolines claimed this exclusive focus made them stronger, but when the meltdown in the sub-prime bond market hit in July of 2007, their limited focus made it a certainty that they would be wiped out.
In early 2008, to give you an idea of how fast this last meltdown actaully melted down… when Fitch downgraded monoline insurer Ambac from AAA to AA, it triggered downgrades on more than 100,000 Ambac-insured bonds worth roughly half a trillion dollars. Plus, the monolines got into the market of insuring CDOs, which today, for the most, part we call “toxic assets.”
Once insuring CDOs is was only logical that the monolines, like Ambac and MBIA, get involved in placing large bets on CDOs through the use of credit default swaps, but at the same time, others in the market were using the same sort of contracts to bet against MBIA and Ambac.
Ambac filed for bankruptcy in November of 2010, subsequently filing lawsuits against just about everybody on Wall Street, from JPMorgan to Bank of America to Credit Suisse to Bear Stearns… alleging improper underwriting and more. Last month, Ambac received permission to emerge from bankruptcy and just yesterday, Ambac sued JPMorgan Chase saying that it has incurred over $200 million in claims on seven RMBS deals that Bear Stearns fraudulently induced it to insure. According to Reuters, the securities in question have loss over $1.8 billion.
MBIA filed for bankruptcy in 2009, and a whole line of banks showed up to challenge the filing, claiming that MBIA wouldn’t be able to make good on its credit default swaps if it went ahead with its plan to restructure into two units. Since then, MBIA has settled its credit default swap liability with Morgan Stanley and others, and… well… the saga continues.
The point is this… maybe there was default insurance purchased by some investors in certain tranches of a given RMBS, certainly not all investors purchased such coverage, and even so… the insurance carrier may have filed bankruptcy and investor claims may not have been paid, or paid at a reduced amount.
And even if a given claim was paid to a given investor in a given tranche, the default insurance we’re talking about here, WOULD NOT be paying off a MORTGAGE in the underlying pool of loans, as some people have apparently been led to believe.
And lastly… when you read the list of the 70 investors in this deal, does it really seem like homeowners would be in any way better off negotiating with any of those hedge funds and assets managers for a loan modification than they are with their servicer? I’m guessing that we’ve got a much better shot with BofA at its worst, than we would trying to convince a hedge fund or asset manager that has just lost fifty or a hundred mil. I’m just saying…
The next slide discusses the deal’s “Key Assumptions,” just like I talked about in my last article on valuing loans in a pool… you remember, right?
Now, this slide was titled “Residual Value – Refresher,” because it was prepared to refresh GE’s executives as to the investment that GE made in the deal. And under “Key Assumptions” at the top, you’ll see all the same terminology we’ve been using since the valuing a pool article…
Next the “residual” is discussed (just like we talked about above when discussing the NIM)
The excess spread is the amount earned in excess of what’s paid out to investors, and the bullets describe how it’s treated, first covering CREDIT LOSSES, which are LOAN DEFAULTS, and then going to maintain the O/C before release beginning in month 17, with the $28.5 million expected to be released in month 26.
Once again… remember that the “Loss Assumptions” shown on the slide below, relate to GE’s investment in the deal.
Start at the chart at top left… DEFAULTS…
The loss assumptions data, which was provided by Merrill Lynch, separates out the first liens from the second liens and used 2003 as benchmark data. Now remember… this presentation was created on a deal that closed during the fall of 2005. Yet, the data being used as a benchmark is from 2003… roughly just 24 months later.
However… look at the graph on the right, which shows “Cumulative Defaults.” Month 0 is when the deal begins its life and notice that 24 months from Month ’0′ the cumulative defaults are between 1-2 percent. So, looking at only 24 months of default data from 2003 clearly wasn’t enough to predict defaults in this deal going forward… not to mention the fact that no one lost homes to foreclosure in 2003 when home prices were going nowhere but up.
So… the top left chart shows that defaults on first mortgages are supposed to be 8.83 percent, 8 percent on seconds. The middle chart on left shows “Severity,” or as we’ve been calling it, “loss severity,” and it’s the amount expressed as a percentage that we think we’ll lose on the 8-9 percent defaulting loans. And the bottom chart shows expected losses.
To see how it all works together, take the 8.83 percent… multiply by the loss severity of 35 percent… and you’ll get the 3.09 percent in losses, that appears in the chart at bottom.
Now, obviously, WMC didn’t have a whole lot of data on loss severity, which makes sense because in 2003 there probably weren’t any losses resulting from loan defaults to speak of… in fact, in 2003, a foreclosed home would have more than likely resulted in a gain as prices continued to rise. So, the 35 percent loss severity that was plugged in would appear to use the SWAG methodology (that’s a “Scientific Wild Ass Guess,” in case you weren’t aware).
So, obviously using 24 months of data going forward from 2003 wasn’t sufficient, but what data should the issuers of these types of securities in 2005 used to forecast future defaults, loss severity percentages and prepayments? I mean, 2000 to 2002 was a pretty bad recession, in case you’d forgotten, and going back into the 1990s would have been comparing completely different loan products. I’m not defending them, nor am I saying it couldn’t have been better, but I just want to show you the nature of the problem from different perspectives.
The overriding point being that no one saw what was to come, specifically… and lots of people lost a lot of money… and there will be lots of litigation going on for lots of years to come as a result.
What went so terribly wrong was how our government handled it, choosing to provide untold TRILLIONS to banks, while abandoning America’s homeowners financially, leaving them to fend for themselves, and sending them hat in hand to giant financial institutions asking that their loans be modified.
I’m not defending the way the banks have handled the situation, but I don’t pay taxes to my bank, nor do I elect my bank’s President, and I certainly have never depended on my bank to protect my rights as an American citizen.
To those who won’t like what I’m about to say… tough.
The specific failure of which I speak rests on the Obama Administration ALONE.
And on the next slide below, we have the basis for the deal’s “Prepayment Assumptions.”
These graphs and data presented were to examine most or all of WMC’s loan products, in different combinations with prepayment penalty and without… and WMC’s actual prepayment experience between 2003 – 2005… over 31 months.
This slide, which is showing WMC’s actual prepayment experience over that 31 month period, not only shows how they arrived at the key assumptions for this deal, but it also shows how frequently people were refinancing their mortgages between 2003 and 2005… which is pretty darn amazing, by any standard.
Prepayment Assumptions GE DEAL
Well… that’s all I’ll cover for now… I don’t want to overwhelm everyone… assuming anyone is actually still following along… so, we’ll leave the rest for the next installment. Stuff like the Collateral and Due Diligence and Securitization Deal Structure… and the Computational Materials, which are the detailed data points they used for things like average life for each tranches, trigger events, and then swaps and the hedging strategies… things that sound more complicated than they actually are.
Nothing about this is truly hard to understand… it’s all grocery store math, really.
We’ll also be drilling down into all the different types of insurance involved in RMBS securitizations, that way maybe people will stop telling me they think their loan has been paid off three times.
And finally we’ll look at the Clean-Up Call, which is what happens at the END of a RMBS REMIC deal… here’s a preview to keep you coming back for more… the specific language in this deal says…
“The servicer may repurchase all of the mortgage loans and properties acquired on behalf of the Trust when the loans remaining have been reduced to less than 10 percent of the original balance.”
Oh my… I can hear the questions popping like popcorn. Don’t worry… get this stuff down and we’ll move on to the next part in a few days. I’ll have you securitizing your own pools of loans in no time.
Mandelman out.
~~~
JAMES ROBERT DEAL ATTORNEY PLLC
PO Box 2276, Lynnwood, Washington 98036-2276
Telephone (425) 771-1110, fax (425) 776-8081
James@JamesRobertDeal.com
March 29, 2012
President Barak Obama
The White House
1600 Pennsylvania Avenue
Washington DC 20500
Dear Mr. President,
I write to identify a policy change that would add trillions of dollars of liquidity to the housing market overnight. It would stimulate home sales, stabilize home prices, and reduce the number of home foreclosures.
My suggestion is to make existing home mortgages assumable. Buyers then would not have to go get new loans. Existing loans could be “recycled.”
To do this Congress might amend the Garn-St. Germain Act to suspend enforcement of due-on-sale clauses in residential mortgages until liquidity is restored to the system.
However, the Garn Act, Title 12, Chapter 13, USC 1701 ff., included a non-binding provision that encouraged lenders to allow assumptions at compromise rates, but this provision, because it was not mandatory, has never been enforced. It says:
(3) In the exercise of its option under a due-on-sale clause, a lender is encouraged to permit an assumption of a real property loan at the existing contract rate or at a rate which is at or below the average between the contract and market rates, and nothing in this section shall be interpreted to prohibit any such assumption.
Relying on this paragraph, perhaps the appropriate agency could make the change without Congress having to amend the Garn Act.
As it is currently written, the standard FNMA/FHLMC Paragraph 18 due-on-sale clause does not actually require a seller to pay off a loan at the time of sale. It only gives the lender the option of calling the loan due should the seller sell without lender consent. Should a seller sell without lender consent, and should the lender call the loan due, the buyer and seller have 30 days to pay off the lender. If the loan is not paid, the lender can foreclose, which typically takes another six months.
If enforcement of due-on-sale clauses were to be suspended, then sellers would be able to pass their mortgages on to their buyers. Buyers would not have to go through the now very difficult process of qualifying for new loans. More homes would become saleable. Home values would tend to stabilize. Fewer homes would be “under water.” Instead of sellers simply abandoning their homes, more would be able to sell them. The number of foreclosures would drop. More renters could become home owners.
Although this simple change would not add new money to the system, it would keep existing money in the system, and make that money available to buyers, thus adding effective liquidity to the system as a whole.
I would assume that many banks have already decided as a matter of internal policy that due-on-sale clauses will not be enforced as long as mortgage payments are paid. Banks do not need more REO properties. However, buyers, sellers, and real estate agents do not know this. And they should know this. Sellers and buyers should be encouraged to do assumption transactions and wrap-around deed of trust transactions. The real estate agents I talk with all assume that due-on-sale clauses are still enforceable. They are very cautious about suggesting that sellers and buyers “go around” due-on-sale clauses. They do not want to be liable if the bank forecloses. Their errors and omissions insurance might not cover them if they advise buyers and sellers to “go around” a due-on-sale clauses.
Before the Garn Act was passed states had their own laws regarding due-on-sale clauses, generally judge-made laws. Some state courts took the position that a due-on-sale clause was in effect a de facto restraint on alienation against selling and buying and declared due-on-sale clauses void, at least for residential transactions.
The Garn Act relied on the Commerce Clause to preempt state laws regarding due-on-sale clauses and federalize the issue. This preemption was a good thing at the time because lenders were operating more and more across state lines. The laws needed to be uniform. Further, the cost of money had risen, and banks needed to recycle their loans to earn more money.
However, at this time in our history, the inability of sellers to allow buyers to assume their existing loans means that buyers must get new financing, and that can be difficult. Strict enforcement of due-on-sale clauses, now more than ever before, really does act as a de facto restraint on alienation.
I would suggest that enforcement of due-on-sale clauses be relaxed for an initial one year trial period so that buyers could assume existing mortgages or do wrap-around deed of trust transactions. I would suggest that buyers be required to meet reasonable requirements for assumptions if there is to be a release of liability for sellers, minimal approval requirements for assumptions without release of liability for sellers, and perhaps no approval requirements at all for wrap-around deed of trust transactions, in which sellers would not be released from liability, as was the general situation before passage of the Garn Act.
Wrap-around deed of trust transactions with no release of liability to the seller should be allowed with no bank review as an available option for two reasons: First, banks are already overwhelmed with dealing with loans in default and short sale transactions, and second, such wrap-around transactions can be closed in a matter of weeks instead of months. If a seller will remain secondarily liable on a loan, he can be counted on to do his own review of his buyer’s credit worthiness.
I would suggest that relaxation of enforcement of due-on-sale clauses apply not only where buyers are buying homes they will occupy, but also where investors are buying homes which will be rentals or which will be improved and resold. Yes, non-owner-occupied investors will go around snapping up homes, but that would not be a bad thing. Sellers would be able to sell their homes and perhaps buy other homes. Foreclosures may be avoided. Banks will not lose as much money. Investors are more likely to have the cash necessary to buy out the equity of owner-occupied sellers and repair homes and get them onto the market as sales or rentals.
Regarding homes that are “under water,” loans on those homes could be modified down to a reasonable interest rate and a principal balance equal to fair market value. After modification, the loan would become assumable.
My second suggestion has to do with co-signers. More buyers could qualify to buy homes if they could assemble a group of non-occupant co-signers. It is my understanding that FHA will allow an occupant-borrower to strengthen his loan application by bringing in non-occupant co-buyers but that Fannie Mae and Freddie Mac will not.
I would suggest that an owner-occupied home buyer be allowed to solicit his relatives and friends to be co-signers and that each be allowed to obligate himself for $1,000 or $20,000 or some other fixed maximum amount of money. I would suggest that this guarantee be non-dischargeable in bankruptcy to strengthen it.
In Washington there is a 1.78% excise tax on title transfers, so for friends to serve as co-signers they should not be required to go on title as co-buyers, as is currently required. Co-signers would voluntarily assume responsibility to supervise their buyer, make sure he is employed, maybe even hire him, and make sure he is paying his mortgage.
With more parties obligated, lenders would have more confidence that a borrower would pay his mortgage. It would be an American version of a Grameen Bank loan where an entire village co-signs for a borrower and guarantees payment.
I would suggest that if an occupant-buyer secures sufficient co-signer guarantees, he should be allowed to purchase a home on a zero-down basis.
Third, I would suggest that the almighty credit scoring system be relaxed, particularly when a borrower can assemble a credible group of cosigners.
Finally, I would suggest that the entire system of qualifying borrowers be reviewed so that those capable of repayment can get loans. There are many arbitrary loan qualification requirements which prevent people who are capable of making their mortgage payments from getting loans.
The best thing about all these suggestions is that they do not involve the outlay of any federal money.
Sincerely,
James Robert Deal
Camping in Zuccotti Park? Bank Transfer Day? Occupy protesting evictions… singing in courtrooms to disrupt trustee sales… lawsuits heaped upon lawsuits… yawn.
What has happened to us? We used to be creative in our protests. We dressed up as Native Americans and dumped tea in Boston Harbor, for heaven’s sake. What about the 1960s? We stopped the war, if you recall. And we were the grooviest! Our history is jam packed with interesting protestors. Rosa Parks. Dr. King. Abby Hoffman. The Bonus Army?
We even burned our girlfriends’ bras for a while… that was fun to watch.
But, the international news out today has understandably left many Americans feeling… well, inadequate isn’t quite the word I’m looking for… impotent, maybe? Flaccid, perhaps?
You see, in Spain… as you may have heard… unemployment is north of 22 percent, there are mucho foreclosures, and the Spanish bankers have been getting the heat for it. Now, it seems they’ll be staying hot, unless they take matters into their own hands.
Spain’s high-class escorts have announced that they will not be offering their services to the country’s bankers until they start fulfilling their responsibilities to their society. “Today, life in Spain really sucks,” one of the girls said. “So, we don’t have to.”
According to RT… a news agency that I now hope to work for one day…
“The largest trade association for luxury escorts in the Spanish capital has gone on a general and indefinite strike on sexual services for bankers until they go back to providing credits to Spanish families, small- and medium-size enterprises and companies.”
The escorts are telling bankers that until they start closing more loans, they won’t be opening their… services… or accommodating any members of the financial services industry. A spokeswoman for the trade association praised the strike’s success by stressing that the government and the Bank of Spain have allowed the flow of credit to run dry.
The spokeswoman told RT… “We are the only ones with a real ability to put pressure the sector, or take pressure off. We have been on strike for three days now and we don’t think they can withstand much more.”
She also said that reports of bankers pretending to be deadbeat homeowners and bankrupt real estate developers in order to enter an escort’s place of business are pitiful. “Who else but a banker can afford the 300 euro an hour?” As soon as they pull out the cash the girls yell, “Métetelo por el culo!” As they laugh and walk away.
Picket signs seen in downtown Madrid read:
The bankers reportedly have become so desperate that they’ve tried to call on the government to mediate hoping the Escort Union would agree to a modification of their demands, but calls to officials were all placed on hold for over an hour before being disconnected inexplicably.
SDPnoticias.com, the site that initially published the story, said the bankers continued to use political clout to lobby the government to stop the strike, but apparently Spain’s Minister of Economy and Competitiveness responded by explaining that just like los swaps de incumplimiento crediticio, the government does not sufficiently regulate the escort industry and since neither trades on an exchange, they could not intercede.
“Escorts are choosing not to exercise their, um… I mean, they are making use of their right to deny admission or entry to… er… well, you know. So, it’s a very hard problem… oh dear, I mean… no one can negotiate,” the minister was quoted as saying as he blushed and hurried from the podium.
Clearly, today’s news from Spain shows that when it comes to protesting, Americans have lost some of our creativity and are simply not up for it as often as we once were. Frankly, many have expressed concern about our staying power as well.
One bright spot, however, is that we are starting to see more whistle-blowers coming out of U.S. banks, so perhaps it’s the jobs of the blowers that will get us excited about protesting again… and again.
Mandelmano echar.
Camping in Zuccotti Park? Bank Transfer Day? Occupy protesting evictions… singing in courtrooms to disrupt trustee sales… lawsuits heaped upon lawsuits… yawn.
What has happened to us? We used to be creative in our protests. We dressed up as Native Americans and dumped tea in Boston Harbor, for heaven’s sake. What about the 1960s? We stopped the war, if you recall. And we were the grooviest! Our history is jam packed with interesting protestors. Rosa Parks. Dr. King. Abby Hoffman. The Bonus Army?
We even burned our girlfriends’ bras for a while… that was fun to watch.
But, the international news out today has understandably left many Americans feeling… well, inadequate isn’t quite the word I’m looking for… impotent, maybe? Flaccid, perhaps?
You see, in Spain… as you may have heard… unemployment is north of 22 percent, there are mucho foreclosures, and the Spanish bankers have been getting the heat for it. Now, it seems they’ll be staying hot, unless they take matters into their own hands.
Spain’s high-class escorts have announced that they will not be offering their services to the country’s bankers until they start fulfilling their responsibilities to their society. “Today, life in Spain really sucks,” one of the girls said. “So, we don’t have to.”
According to RT… a news agency that I now hope to work for one day…
“The largest trade association for luxury escorts in the Spanish capital has gone on a general and indefinite strike on sexual services for bankers until they go back to providing credits to Spanish families, small- and medium-size enterprises and companies.”
The escorts are telling bankers that until they start closing more loans, they won’t be opening their… services… or accommodating any members of the financial services industry. A spokeswoman for the trade association praised the strike’s success by stressing that the government and the Bank of Spain have allowed the flow of credit to run dry.
The spokeswoman told RT… “We are the only ones with a real ability to put pressure the sector, or take pressure off. We have been on strike for three days now and we don’t think they can withstand much more.”
She also said that reports of bankers pretending to be deadbeat homeowners and bankrupt real estate developers in order to enter an escort’s place of business are pitiful. “Who else but a banker can afford the 300 euro an hour?” As soon as they pull out the cash the girls yell, “Métetelo por el culo!” As they laugh and walk away.
Picket signs seen in downtown Madrid read:
The bankers reportedly have become so desperate that they’ve tried to call on the government to mediate hoping the Escort Union would agree to a modification of their demands, but calls to officials were all placed on hold for over an hour before being disconnected inexplicably.
SDPnoticias.com, the site that initially published the story, said the bankers continued to use political clout to lobby the government to stop the strike, but apparently Spain’s Minister of Economy and Competitiveness responded by explaining that just like los swaps de incumplimiento crediticio, the government does not sufficiently regulate the escort industry and since neither trades on an exchange, they could not intercede.
“Escorts are choosing not to exercise their, um… I mean, they are making use of their right to deny admission or entry to… er… well, you know. So, it’s a very hard problem… oh dear, I mean… no one can negotiate,” the minister was quoted as saying as he blushed and hurried from the podium.
Clearly, today’s news from Spain shows that when it comes to protesting, Americans have lost some of our creativity and are simply not up for it as often as we once were. Frankly, many have expressed concern about our staying power as well.
One bright spot, however, is that we are starting to see more whistle-blowers coming out of U.S. banks, so perhaps it’s the jobs of the blowers that will get us excited about protesting again… and again.
Mandelmano echar.
Click cover to buy on Amazon.com
If you’re not already familiar with Ellen Brown, then I might as well just go ahead and say: “Your welcome,” because I can’t imagine anyone not liking this prolific blogger, author of 11 books, attorney, and President and Chairman of the Public Banking Institute. Ellen and I have been reading each others’ work for some time now, as it turns out, but we’ve only gotten to know each other personally since first speaking on the phone only a few months back.
I think it took me about five minutes into our first conversation before I asked her be my guest on a Mandelman Matters Podcast. What she has to say about public banking is fresh and fascinating… and she says that something like 17 states have public banking up for votes this year… and I did not know that.
Excerpts from the site: Webofdebt.com and from the book itself…
“The 1890s were plagued by an economic depression that was nearly as severe as the Great Depression of the 1930s. The farmers lived like serfs to the bankers, having mortgaged their farms, their equipment, and sometimes even the seeds they needed for planting. They were charged so much by a railroad cartel for shipping their products to market that they could have more costs and debts than profits. The farmers were as ignorant as the Scarecrow of banking policies; while in the cities, unemployed factory workers were as frozen as the Tin Woodman from the lack of a free-flowing supply of money to “oil” the wheels of industry. In the early 1890s, unemployment had reached 20 percent. The crime rate soared, families were torn apart, racial tensions boiled. The nation was in chaos. Radical party politics thrived.”
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“Our money system is not what we have been led to believe. The creation of money has been “privatized,” or taken over by private money lenders. Thomas Jefferson called them “bold and bankrupt adventurers just pretending to have money.” Except for coins, all of our money is now created as loans advanced by private banking institutions — including the privately-owned Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.”
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Web of Debt unravels the deceptions in our money scheme and presents a crystal clear picture of the financial abyss towards which we are heading. Then it explores a workable alternative, one that was tested in colonial America and is grounded in the best of American economic thought, including the writings of Benjamin Franklin, Thomas Jefferson and Abraham Lincoln. If you care about financial security, your own or the nation’s, you should read this book.
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I think everyone is going to really enjoy listening to Ellen discuss the financial issues of the day… from the Wall Street meltdown of 2008 and how we handled things from there, to the impending default of Greece and other members of the EU… Ellen knows what she’s talking about, and a joy to listen to, not only because she makes the most complicated economic concepts easy to understand, but because she makes them personal, never academic.
This podcast is presented in two parts, so we might as well turn up those speakers and get started. I can promise you this… you’ll never look at “The Wizard of OZ” the same way again… and it’s just fascinating to me that we’ve been here before in this country… more than once.
Mandelman out.
“Per JC’s direct instructions.”
Remember, fully $1.2 billion of customer money was “vaporized,” possibly never to be recovered, as the firm scrambled to stay afloat last fall. The suspicion was that MF Global managers had dipped into customer accounts — which are supposed to be strictly segregated just in case, oh, say, the firm fails — to fund firm [...]
“It’s hard to imagine a less-deserving group of victims: people who gambled during the housing bubble by purchasing homes with borrowed money that they knew or should have known they couldn’t afford, but who are now able to stay in the homes they should have never bought because of what amounts to paperwork errors on the part of the nation’s big banks.”
That’s how Fox Business reporter, Charles Gasparino opened his column that appeared in the New York Post back on February 10, 2012. Titled, “A Deadbeat Bailout,” he was writing in response to the settlement agreement between 49 state attorneys general and the five largest banks that had just been announced.
“But that’s essentially what went down, thanks to the Obama administration’s latest re-election gimmick — the nationwide mortgage-foreclosure settlement.”
Now, I’ll bet you think I’m going to tear this guy apart for being such an insensitive idiot, right? Well, you’re wrong. In fact, I’ve decided that “the Gasp” is absolutely right on target with his analysis of the situation.
It’s clear what happened here…
Millions of middle and working class people, and some richer folks too, all decided at the same time that their lives were not exciting enough. They longed for the days when they were losing their retirement savings through investments in profitless dot-coms attempting to monetize eyeballs, and whose stocks were regularly pumped up by analysts paid for their favorable opinions. Yes, those were some good times.
So, they all got together and decided they would take up gambling in a much bigger way than ever before… they’d literally bet their farms. They started gambling with their entire net worth AND the homes in which they lived, and perhaps because they were relatively new to the whole gambling thing… or maybe because they were once again following the lead of Wall Street’s investment bankers… they lost their shirts and their farm houses.
Today, as a result, there are literally millions of these irresponsible failed gamblers aimlessly wandering around the country looking for justice… very much like Kwai Chang Caine in the 1970s television show, Kung Fu…
Young Caine: Is it good to seek the past, Master? Does it not rob the present?
Master: Only banks may rob the present. You must try to rob the banks.
Caine: But we are merely deadbeats, what about a bailout?
Master: For that you must seek out the one they call “Obama.”
Caine: But was it not Obama who bailed out the banks?
Master: Yes, he did my son… along with the second Bush. But, have you not heard of “the election?”
Caine: No, Master, I have not.
Master: Well, when you can snatch the election from Obama’s hand, then you will receive the bailout.
Okay, Charlie… work with me here… you’re fluttering all over the place like Woodstock, that little yellow bird that hangs out with Snoopy in a Charlie Brown cartoon. And it’s not very becoming for a journalist of your stature.
Let’s start with your initial premise… it’s the “Obama administration’s latest re-election gimmick.” No question about it… you nailed that one. And the whole thing about how the administration “would like us to believe that the nation’s largest banks are finally paying for their bad behavior during the housing bubble and its aftermath, etc. etc.” Bingo… you nailed that part too.
After that, however, you started getting your facts all mixed up. For one thing, the banks still haven’t signed any final settlement agreement, and you have to know that. For another, the banks aren’t paying out $26 billion to anyone, under any set of circumstances. I think cash out the door is about $5 billion, and if it reaches that amount net, I’ll pick up a cake and celebrate.
Here’s how it appears to break down… of the $5 billion, there’s $4.25 billion that goes to the states with the $750 million balance going to the federal government for whatever and who cares. Now, from the $4.25 billion you have to subtract the $1.5 billion that’s going to the deadbeats who lost homes in faulty and fraudulent foreclosures between 2009-2011.
And I’m with you on this “robo-signing” nonsense… I mean, the only reason they call it “forgery” is because someone forged someone’s signature… what’s the big deal about that? I mean, if I had a nickel for every time I forged an affidavit… I mean, grow up. And don’t even get me started on the whole ‘standing’ thing. Just because I can’t prove I own a house means I can’t evict the deadbeat living there? That’s just stupid.
Anyway, the deal is supposed to pay out $1,500 – $2,000 per deadbeat, and I realize that you and Dick Bove are concerned because you know these people are deadbeats, but apparently the Obama administration and the AGs do too, so calm down.
First of all, you have to realize that five or six million have lost homes to foreclosure during the last four years. But, the settlement only applies to about a million or a million and a half of the “victims.” To cover everyone equally they’ll only be getting $1,500-$2,000 each, which really isn’t bad for fraudulently foreclosing on a home. If you think about that way, it’s kind of a deal. I don’t know about you, but I’d be willing to throw in two grand of my own money to watch Diana Olick get tossed out in the street… just to have some fun on a Sunday.
And even if we assume that you’re right and the “fraud” being talked about only amounted to insignificant dalliances with meaningless paperwork, I think that message is sure to be heard loud and clear when, as compensation for losing a home, someone picks up a check that’s two grand shy of the downpayment required to lease a new Hyundai. Just think about it… when it comes to “victim compensation,” few things say “insignificance” better than half the downstroke on a leased Hyundai. I guess you could spit in the person’s face at the same time, but that would require hand delivering the checks and who wants to go to that sort of trouble.
I’m not sure how to handle the five percent issue though. You said that, “95 percent of the victims weren’t victims at all,” but that means that five percent were? Well, that’s kind of a bummer, right? They got tossed out of homes, but really shouldn’t have? That sort of sucks, wouldn’t you say? I mean, okay… I guess on Wall Street it’s also sort of hysterical… like, I hate it when that happens. I guess it’s not that big a deal though, I mean in 10 or 15 years they’ll be right back where they were, mortgaged to the hilt in some spring-loaded, snapping turtle of a loan. And hey… stuff happens, right?
I have no idea how they’ll divide the remaining $2.75 billion among the 49 states, if divided evenly it’s about $56 million each. Not that they’ll do it that way, but it’s worth noting that in California, that amount would cover one year of incarceration costs for a little over one-half of one percent of the state’s prison population.
My prediction is that states will end up taking whatever they get and putting it towards the currently incalculable and certainly undisclosed budget deficits coming in 2013 and 2014. One or two states have already said they’d be doing that, and you’ll no doubt be happy to hear that Ohio is going to use much of their share to demolish foreclosed homes.
I know you’re concerned about what we teach this generation of homeowners, because as you said, “If there are no consequences to risk, why not just roll the dice again and again?” Well, I can’t think of anything that’s more effective at teaching ex-homeowners a valuable lesson… I mean, if you get thrown out of your home… just so the bank can tear it down… well, if you didn’t know it already, you know you’re a deadbeat for sure after that.
But, either way… whether the money goes to state budget deficits, or pays to tear down homes… or even if they end up sliding a grand or two into the pockets of some number of ex-homeowners, I really don’t think it’s anything to get all worked up over. I mean, yes… technically it’s still a bailout, but as bailouts go, it’s fairly meager. Besides, I don’t think we have to worry that the recipients of the two thousand dollar checks are going to stash their windfalls in Cayman National or anything, so it’ll just bolster the demand deposits at the major U.S. banks where it can be eaten away by fees and 29 percent interest payments. Worst case, they’ll spend it on an iPad, use it for the down payment on a new car, or maybe repay a student loan, so Wall Street types really should relax.
Most importantly, the people that are being refinanced that are underwater aren’t the “victimized” deadbeats; you got this whole part wrong. The people that are being refinanced are current on their payments… they’re underwater, yes… but they’re current. Refinancing them is the right thing to do… if you’re the bank or maybe the government. For those homeowners, however, it’s pretty much the equivalent of handcuffing them to the bedframe and setting the house ablaze on your way out.
And, although I know that they’re talking about refinancing, but lets just wait and see what happens when a homeowner is presented with a refi in the amount of … $400,000… and the place across the street just sold for $178,000. You’d have to get me drunk before I’d sign that loan, and my guess is others won’t rush to sign theirs either. And that assumes that the banks are actually going to be offering 200% LTV refis, because there’s certainly no indication of that happening to-date.
The rest of the money, something like $17 billion or slightly more, is supposed to go to foreclosure prevention, and that includes principal reductions. And, I’m happy to be able to say that within a week or two of the settlement having been announced, I received and confirmed reports that Bank of America has already started offering its borrowers loan modifications that include some very significant principal reductions. In fact, one lawyer I know that helps homeowners through the loan modification process just told me that of the last 5-6 modifications that he saw come from BofA, ALL included principal reductions to current market value.
(And, by the way… Ocwen, although not a part of the AG settlement, has been granting principal reductions under its “Shared Appreciation Modification,” or SAM program for some time now. It’s not part of a bailout for deadbeats, however, it’s because they have people who can do math.)
But once again, Bank of America as large as they may be, is not America’s $10 trillion residential mortgage market, and since neither Freddie, Fannie or FHA are participating in the principal reduction part of the plan, I’d say we’re in very little danger of doing anything terribly beneficial for deadbeats on a widespread basis. Besides, even if the government and the bankers, for the first time ever, actually fell into something productive in this regard, $17 billion in principal reductions, or $40 billion for that matter, which is the other number being tossed around for whatever reason, would be like removing sand from the beach with a teaspoon, when viewed in the context of $1 trillion in underwater loans.
So when Big Dick Bove says: “What this settlement did was to help 1 million people who were deadbeats,” it’s not really the case. Okay, sure… maybe a few deadbeats are technically getting a tiny bit of help, but I’m confident that we’ll be pulling the rug out from under them before anything would rise to the level of actual help. Let Dick know… I’m sure he’ll be relieved to hear it.
Also, I’m wondering something… when you say that, “foreclosures are a necessary ingredient to the housing market’s recovery,” how many do you figure we’re going to need in order to really “recover?”
I only ask because we’ve had something like 6-8 million so far, Amherst Securities says about 11 million are coming. Do you think 20 million foreclosures, roughly one out of four mortgages in this country, will that be enough to get my equity back and put us on easy street once again? If not, maybe we should start lobbying the Obama administration to extend that HAMP loan modification thing, because that sure was effective at generating foreclosures. Although, maybe FHA will be able to pick-up any slack. They’re numbers certainly look promising, if the last couple of years are any sort of gauge.
Let me know… I’m anxious to hear your thoughts.
Mandelman out.
But even high oil prices can be good news for some
Oil prices remain a concern heading into Spring, and most of the folks we hear from are pretty unhappy. Nobody likes paying more for gas, right? So higher oil prices are bad, yes? It turns out that the reality is a fair bit more complicated than what some of us may think. Recent news has [...]
Did you hear about this? California’s Attorney General, Kamala Harris has asked the Federal Housing Finance Agency, or FHFA, which is the government agency that is acting as conservator for failed mortgage behemoths Fannie Mae and Freddie Mac, to stop foreclosing in California until it has conducted a “thorough, transparent analysis of whether principal reduction is in the best interests of struggling homeowners as well as taxpayers.”
Well, damn woman… that’s the spirit. I didn’t know you had it in you. Bravo!
Can I just tell you something about this? If this works… I am going to be so pissed off that I may have to be medicated. We’ve already lost a bazillion homes to foreclosure in California, half the damn state is underwater and you know it’s higher than that if you add in real estate commissions and other miscellaneous costs associated with selling a home. And there are about 2 million homes in foreclosure or very seriously delinquent right this moment in this state.
As a result of the foreclosure crisis, we’ve got headline unemployment around 12 percent, with the real number being over 16 percent, and some economists saying under-employment in the state is 22 percent, which isn’t at all hard to believe.
And all of this has created a huge budget deficit of $9.2 billion through June 2013. That’s after making significant cuts, raising taxes on the wealthy, adding a half-cent sales tax bump and assuming the Facebook IPO goes well. And even with that, the nonpartisan Legislative Analyst’s Office has just released its study of Governor Brown’s numbers, saying…
“We can identify no strong rationale for the administration’s assumption that capital gains will grow very rapidly in 2012 and later years.”
I’m not even going to mention how much yours truly has watched evaporate since 2007. It may not be as much as it cost for the Obamas to take their family ski vacation in Aspen recently, but it’s quite a bit more than it would cost to send SEVEN kids to Harvard for FOUR years.
So, if she ASKS for the foreclosures to stop and they do… well, I’m… I mean… no, I think… but when you… um… oh my God… it’s just that… would you… arghhhhh.
A Mind of His Own…
The U.S. Congress, President Obama, and Secretary Geithner have all been leaning on acting director Edward DeMarco to allow Fannie and Freddie to do more to stop foreclosures, and specifically to start reducing principal for quite some time now, as in over a year, and DeMarco has said, “No.” And when this man says “no” he means no, damn it.
Rep. Elijah Cummings (D-MD), who has also urged DeMarco to change his position, was quoted in the Huffington Post as having said in a recent interview…
“All the administration can do is keep pushing. DeMarco has the power.”
I’ll say this… it’s fascinating to watch, that’s for sure. I must have missed it, and I do apologize for that, but what’s this form of government we’re now using called? I tried looking it up… is it an “Adhocracy?” Here are a few of the characteristics of an adhocracy according to Wikipedia:
That sounds close, doesn’t it? It’s either that or “Chiefdom,” seems to fit as well.
Ed DeMarco is so lucky that Obama’s a wussy… wait, oh my God, did I just say that out loud? I am so sorry; I can’t believe I did that. But my point is the same.
I’d like to see DeMarco trying this sort of thing with Lyndon Johnson in the Oval Office. Oh, ho, ho… Ed would kick some sand in Lyndon’s face and find himself being called “Stumpy” for the rest of his natural life, you dig what I’m saying here?
Actually, truth be told, I can’t even think of a President in my lifetime that would tolerate this nonsense from some econocrat hired to be a fancy-pants version of a bankruptcy trustee for a failed mortgage company. Were it President Kennedy we were talking about, DeMarco might have climbed into the back of his limo to head home after a long day, only to find Sam Giancana had replaced his driver.
“Yeah, well Jerry wasn’t feeling so good, so I gave him the night off, Mr. DeMarco,” Mooney would have said… as the doors all locked at once. “You just sit back and relax, we’ll be across the river and in Virginia in no time.” And then he’d turn on the radio and start singing “That’s Amore,” along with Dino.
At least that’s how it would go in a Martin Scorsese picture about President Kennedy, which is how I like to think of JFK. Either that, or DeMarco would have found himself on his way to Playa Girón in the Gulf of Cazones on the southern coast of Cuba.
So, Kamala says, “Boy, if you don’t… don’t make me come out there…”
I was about to jump into a Chris Rock routine there for a moment. Actually, I don’t even know if she can pull off that angry black woman thing, but that’s exactly what we need at a time like this. You think Weezy Jefferson would be putting up with some nerdy pasty white guy causing people to be thrown out of their homes? I’d say not. Isabel Sanford would have kicked DeMarco’s butt out into the street last summer before Labor Day.
But, so help me Lord… if Kamala’s “request” accomplishes anything close to what she’s asking for, I’ll probably pass out, hot the floor, and have to be hospitalized for weeks as I sit in the bed mumbling all sorts of strange things to myself.
I mean, people have been abused, tortured, taken years off their lives no doubt, and some even taken their own lives, and all we had to do was get Kamala to request that he cut it out? And she’s only just thinking of this now? She couldn’t have come up with the “maybe I could ask him” idea last year? Just what was it that caused her to have this epiphany right now anyway, and does she THINK that it might work?
Or, is she treating me like I’m a toddler with a learning disability who’s going to give her credit for trying. “It’s okay, at least you tried. Let’s give her a hand everybody, at least Kamala tried. She’s looking out for us all… she’s trying… can’t argue with that… thank you Kamala.”
And what do you suppose is next… I mean if her request happens to fall on Ed’s characteristically deaf ears? Is she going to try again, but with “pretty please and sugar on top?” And what if that doesn’t do the trick either… “Simon says?”
Oh hell… you know what? The bar’s so damn low nowadays, I’m starting to think… well, at least she did ask, and that’s a damn sight more than Governor Brown has done… or at least most of the House of Representatives and the entire United States Senate.
And our state legislature… do we still even have a state legislature? Someone should run over to our state capital and see if everyone’s okay in there. You don’t know… maybe they’ve all been gassed or someone poisoned the water supply and bodies are strewn across the floors in there, dead for weeks or even months… you don’t know, how would you know? It’s been so quiet, I’d forgotten they even exist… maybe they’re all gone?
Alright, so never mind, Kamala… good job, thanks for thinking of us, we do appreciate it… and you’ll let us know if DeMarco says yes, won’t you? We’ll just be waiting over here someplace… you have my number, right? I’ll email my contact information just so you have it.
Sorry everybody… false alarm… Kamala’s asked, and that’s really all anyone can do… so, we’ll let you go back to bed now. Lo siento. Que’ se mejore pronto!
It means… “I’m sorry. And I hope you get better soon.”
Mandelman out.
Okay, late one night this past week I got a call from Heidi Cuda, a producer from Fox 11 News in Los Angeles. She explained that she’d been producing a week long series about the foreclosure crisis in California, titled, “Saving the California Dream,” and several people including an attorney friend of mine, Walter Hackett, said that she should be talking to me.
“Why?” I asked. ”I’m not in foreclosure, did Walter say I was a deadbeat borrower?” I think I threw her off with that line.
“No,” she said. ”Everyone says you’re the guy that knows everything about the foreclosure crisis.”
“I’m going to kill him,” I replied.
“Noooo,” she said. ”Everyone said you were wonderful. I want to interview you for the final segment.”
“Where the hell have you and the rest of the mainstream media been for the past three years?” I asked.
She took the bait. ”Well, I’ve been going all over the state talking to homeowners and I’ve learned all about… blah, blah, blah.”
I wasn’t really listening.
“So, what makes you think you’re qualified to interview me?” I asked in earnest.
“I’m not, but that’s why I need you, you’ll make the series and I need to learn from you,” she said sounding sincere.
Ooooh, she was good. Very slick. Soooo L.A. Like she just got off the set of “Entourage,” on HBO.
“What time,” I asked.
“Noon on Friday.” She replied.
“Okay, I’ll try.” I said.
“I can’t wait to meet you,” she fired back still sounding sincere.
Yep, she was a “producer” all right. ”Alright, see you then.”
Ciao.
Click.
“Love ya’ babe…” I said under my breath, after she’d already hung up.
So, I drove up to LA, we taped the interview and I drove home. Then I went back to my desk, started writing and promptly forgot all about it, so I missed it at 6:00 PM, or whenever it was on, and missed it again at 10:00 PM, when it aired for the second time.
The next day people kept asking me if I’d seen it, so I watched it on-line. Didn’t think much of it. Hated it, actually. What a waste of time. Never doing that again.
Then she called me today. ”Hi,” I said. I was wimping out. She tells me Part 2 is on tonight and it’s going to be great. I didn’t know anything about a second part. So, this time my wife called me when it was starting… so, I watched it. And it was much better than Part 1, I thought. You, however, can decide for yourself, if you’re so inclined.
I’d skip Part 1, if I were you… but that’s just me.
Mandelman out.
Saving The California Dream: Foreclosure Toolbox Part 5: MyFoxLA.com
Saving The California Dream: Foreclosure Crisis Part 2: MyFoxLA.com
The way things stand today, housing won’t “bottom” this year, it won’t bottom next year, and it won’t bottom the year after that, and should you come across someone who has money and disagrees vehemently, please give them my email so I can make some extra cash on the side.
How do I know this? Well, I’ve been right since 2007 and that would be pretty remarkable if there was anything else that could possibly have happened… but there couldn’t have been, so the more interesting question is how can all these people running our show be so consistently wrong? That’s the question, and I’ve asked it before… are they stupid or lying?
Housing can’t bottom because there’s essentially no demand for housing, okay… very little demand for housing… and you don’t need a calculator to figure this one out. Follow me here…
Just try to remember what I’ve said countless times… NOTHING goes down in a straight line.
Warren Buffett admitted yesterday that he was “dead wrong” about housing when he predicted it would recover by now. That’s cute, isn’t it? The billionaire made a boo-boo. Ooopsie! But, he’s still a billionaire and the people that listened to him in 2009 and 2010 are the current wave of foreclosures at FHA, which by the way, is the new sub-prime and the next bailout for sure.
Buffett has no idea what he’s talking about. He’s been living in the same house in Omaha, Nebraska since 1958. Have you been to Omaha, Nebraska? Well, I have. And the fact that some multi-billionaire is still living in the same house he bought in 1958 in Omaha is not quaint… it’s not “old school.” It’s f#@king nuts. Insane. Weird. Like, as in… needs some sort of clinician to diagnose it, sort of weird.
I don’t know what his deal is… but I’ll bet it’s difficult to pronounce.
That means that more people stopped looking for work, not that more people found it.
The participation rate sunk to 63.7 percent last month, which is the lowest since May of 1983! Do you remember 1983? I do, and it was God awful. It means that roughly 88 million people in this country over 16 years old not only didn’t have a job, but weren’t even trying to find one. Not even trying.
I’ll bet they’re a cheery, upbeat bunch. Probably all out looking for houses to buy now that we’re hitting the bottom and all. Maybe Buffett will put them to work so they can all buy homes in Omaha…. and then kill themselves.
The employment-to-population ratio, which is the percentage of Americans that have jobs… HAS NOT CHANGED AT ALL. It’s 58.5… the SAME as it was in January 2010. Oooh baby… what our dust, we’re recovering now.
Oh, wait. That’s right… I totally forgot… everything’s fine… it’s a “jobless recovery,” remember? So, why is Bernanke so worried about the whole unemployment thing anyway? It’s “jobless” so we’re right on track, we’re in line with the forecasts… hitting the numbers perfectly.
The “headline” unemployment rate in which we like to bathe in this country only counts people who answer the phone and tell the survey taker that they’re actively looking for work. And if more people were looking, then the unemployment rate would be a lot higher. So, what Obama really needs is for more people to STOP LOOKING. And if that doesn’t make you want to chew on glass all by itself, then I don’t really know what to say to you.
Seems like most folks are cooperating though, because at the beginning of this month, based on the latest census data, the Labor Department increased the number of working age people by 1.5 million, and of those 1.25 million were not even looking for work, so you gotta’ figure they’re all Obama supporters, right? Just doing their part.
Bloomberg’s got the data here, in case you feel a need to check my numbers.
The Fed chief continues to do the only thing he can do, I suppose… come right out and promise low interest rates until at least 2014 and pump money into the system like a mad man. The problem is that money isn’t exactly going places.
Since the recession in 2008, M1 money supply has increased by an absolutely jaw-dropping 60 percent, coming in over $2.2 trillion in January of this year, and with no end in sight… it’s going higher for sure. And tons of cash makes the stock market happy, but today’s cash flood isn’t doing much for the economy.
Money supply is one part of the equation, but the other component to the deal is called “velocity,” and the velocity of money in this country has fallen off a cliff, going from 10.37 in late 2007 to 7.09 as of late 2011. Ouch.
Velocity of money is about how fast money is changing hands, buying goods and services… you know, making for economic activity. And the scads of money Bernanke continues to pump into the system with reckless abandon isn’t moving… it’s not changing hands… he’s just pushing string, get it?
As a result of all this, what they call the M1 “multiplier” has stayed below the 1.0 level for the last three years. The multiplier effect is an economics term that refers to the amount of commercial bank money that’s created by central bank money. So, it’s like the Fed increases it’s loans to banks and its purchases of government securities (called bonds) and by doing so pushes money into the commercial banks who are in turn supposedly “encouraged” to loan it out and earn interest, and thereby turn the Fed’s one dollar into more than one dollar.
Except it’s not happening, right? In fact, between August 2008 and November 2009, bank reserves grew by 500 fold, from $2 billion to one trillion. The banks didn’t lend it out. They didn’t find the excess money very encouraging. Do you know why? Because they knew that we were getting screwed, that’s why.
They knew we were in debt big time, because they’re the ones that put us there, and they knew that we’d be getting no help from the government, so there weren’t a whole lot of people to lend it to without taking on too much risk. So, they just kept it. And that’s why I keep saying, it’s not a liquidity crisis, it’s a credit crisis.
So, you know you have a credit crisis if the money multiplier is 1, right? Because if banks were lending the money out, the multiplier would have to be greater than one, right?
And when you have a credit crisis, then many people can’t buy houses, and that means that the prices of houses will go DOWN. And that means that we won’t spend like we used to when our houses were worth a lot more and there was credit available, and that means companies will make less money and lay people off. And that leads to more foreclosures, which puts additional downward pressure on house prices, which leads to more foreclosures still.
So… super low interest rates for an extended period of time… literally trillions in cash sitting in bank reserves with more being pumped into the system every day, but with the velocity of that money falling and a multiplier that stays at 1… add it all up and what do you get?
Well, on one hand you get a stock market that’s artificially pumped up by the Fed’s assurance of continued low rates, and a free flowing money supply. But on the other hand you have anemic velocity, a multiplier stuck on 1, and unemployment that’s only getting worse, which means company’s won’t be growing they’ll be shrinking… so you has is an economy that’s deflating.
Bernanke would rather deal with just about anything than deflation, so he just keep a-printing and a-pumping hoping against hope that one day the banks will be so bloated with cash that they loan it to anyone that asks. It’s really quite sad, if you think about it. Poor little man… only knows one trick and when it isn’t working all he knows to do is just try it over and over again. Makes me get all teary eyed, poor guy. Someone should really teach him a new trick.
Last thing… take the artificially pumped up stock market and hold it up next to the dog-doo economy and what do you see? You see some seriously over valued stocks, which is another way of saying that you see stocks priced to deliver some exceptionally poor returns to investors.
Because one day, the Fed won’t be able to pump, because the pump she will run dry, as all pumps do. And then what will be holding up the market at these levels… uh oh… no clothes… run away!
Then you’ll hear, “Come Mr. Tally man, tally me banana,” and daylight will come and you’ll want to go home.
Oh yeah… and then there’s always Greece, et al. Can’t forget them. Opah!
You might want to bookmark this page, so as the election gets closer and thing get even better than they are today, you’ll be able to contain yourself.
Mandelman out.
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