THEY ARE TRYING TO WATER THE DOLLAR WHILE PRETENDING THE SKY IS FALLING

Not the kind of ‘inflation’ hawked as a bogeyman in connection with wages–CNBC just aired an interesting stat that the median salary of white men in their thirties declined 12 percent from 2004 to 2007–but genuine inflation, the kind you get in Germany at the collapse of governments between the wars and at the collapse of the Third Reich. The kind where citizens joked, gallows-humor style, that they had to fill their grocery carts with Marks (currency) to buy a single head of cabbage.

There must be a lot of Congress members panicking over the prospect of 401Ks losing money in the stock market. But the biggest supporter of the bailout package, be it noted, is George W. Bush. Cable networks supported by Wall Street advertisers also support it. Some major newspapers support it, backed by their biggest investors.

WHY DIDN’T THE GOVERNMENT JUST INTERVENE TO PAY OFF VULNERABLE MORTGAGES?

Sign of the times

FUNNY HOW THIS SEEMS TO HAVE OCCURRED TO NO ONE IN THE BUSH ADMINISTRATION–

but the waves of foreclosures that are said to have begun the current financial crisis, if it is one, could have been held back from the get-go. How? Simple: Through government intervention. If Uncle Sam was going to jump into the housing market with fistfuls of billions, he could have paid off selected mortgages. Here is what A. Maslow would call the hierarchy of needs in the current situation, as broad-brushed by this morning’s Washington Post: “In a practical sense, the government is trying to revive the markets because buying up all the troubled assets would require far more than $700 billion.

Twenty of the nation’s largest financial institutions owned a combined total of $2.3 trillion in mortgages as of June 30. They owned another $1.2 trillion of mortgage-backed securities. And they reported selling another $1.2 trillion in mortgage-related investments on which they retained hundreds of billions of dollars in potential liability, according to filings the firms made with regulatory agencies. The numbers do not include investments derived from mortgages in more complicated ways, such as collateralized debt obligations.”

Setting aside if one could how horrible all this is, what one notices is that

1. Mortgages themselves are less than half the total indebtedness: $2.3 trillion.

2. This $2.3 trillion number in mortgages is huge but comes to far less than the combined total estimated at $1.2 trillion in ‘mortgage-backed securities,’ plus $1.2 trillion in ‘mortgage-related investments’ ($2.4 trillion so far), plus ‘collateralized debt obligations’ with an unestimated paper value–thus probably about twice the rest of the Ponzi total. We can thus estimate a total in mortgage-backed financial mirages of somewhere around $5 trillion.

3. It should be pointed out that most mortgages are not in trouble. What proportion of these mortgages are commercial and what proportion are residential is not stated, but in any case, the overwhelming majority of people with mortgages are paying them. Notwithstanding the horrendous difficulties facing Detroit, in residential real estate one-third of all U.S. mortgages now in trouble are in California–where residential real estate prices went to vertiginous and unstable highs unrelated to concrete land values. (The West Coast is desirable, but it is not squeezed for space. It is not Hawaii.)

Back to basics.

If foreclosures were indeed what started the current problems, and if government intervention is warranted, then government should step in by paying off people’s mortgages. Help the people–homeowners–who really need the help. Help the city blocks and the streets in midsized towns that really need help. Stabilize the real estate markets by keeping nice people in their houses.

This remedy would have to be applied within limits, of course, and the Treasury Secretary would have to be given some latitude in picking his jurisdictions (counties or towns):

a) He could start with a short list of the hundred poorest zip codes in the United States and simply pay off troubled mortgages in those zip codes. Given house prices in the poorest regions, that assistance would amount to less than one percent of one percent of the dollar totals being bandied in Washington. He could then move on to another short list of the hundred next-poorest zip codes in the nation, and pay off the troubled mortgages in those zip codes. He could then progress up the list to the next hundred poorest zip codes in the U.S., and pay off the troubled mortgages there.

b) He could also start with a short list of the hundred zip codes in the U.S. with the highest foreclosure rates, and pay off troubled mortgages in those zip codes, proceeding as above in a).

c) He could also start with a short list of hundred zip codes in the U.S. where abusive lenders have done their worst–abusive ARMs, low-balling, etc.–and pay off the troubled mortgages in those zip codes, proceeding as above in a) and b).

Certain conditions would apply: The houses would have to be the mortgage holders’ primary and actual residences–not investment properties or second homes. The owners would have to have lived there some set number of years, say 3 years; to have made their payments up to some set point; to have made a good-faith effort, in other words, to meet their mortgage payments. There would have to be a cap on the mortgage balances to be paid off–no jumbo mortgages–and some cap on the income of householders eligible to receive the help–no millionaires.

This would be no single-pronged attack on the problem. It would have to accompany investigation and conviction for abusive lenders, a thorough crackdown on corporate fraud at all levels, and a stringent reining in of corporate waste–including lobbying, advertising and executive compensation. 

But surely the banks and other mortgage lenders would have little to complain about. After all, they would be getting their money, the money they lent via those mortgages, plus the hundreds of billions in interest already paid on the mortgages.

The only things not supported by government—taxpayers–would be those nebulous collateralized obligations and mortgage-backed securities, which they never should have invented in the first place.

What’s not to like?

WHY ARE THEY LISTENING TO WARREN BUFFETT?

Why is Congress inviting in a major investor–who stands to recoup more billions of $ in the wake of the bailout proposal, if enacted–to weigh in on legislation?

You want some perspective on Buffett as the populist protector? 1) He was one of Arnold Schwarzenegger’s top two or three advisors, when Schwarzenegger hijacked the California recall campaign conducted mostly by Darrell Issa and unceremoniously replaced Issa with himself. GOP movers and shakers enforced the replacement–which took place within hours of the successful recall. One result is that Californians–who are suffering mightily from a lethal bubble in the real estate market in that state–are stuck with Schwarzenegger as Gov. And Buffett was, as mentioned, his advisor.

2) Buffett is a major stakeholder in the Washington Post Company, the parent company of the Washington Post newspaper. This connection is sometimes mentioned in Post news reports and columns, sometimes not. (Why the editors do not insist on making the mention routine, every time Buffett’s name appears in their newspaper, is beyond me.) Buffett has been connected with the Post ever since the Post started trending toward the rightwing Washington Times, including the period in which the WP treated George W. Bush as a credible presidential candidate.

These people are not unbiased sources on questions like whether the purchase of “troubled assets”–essentially, a guaranteed price for an unguaranteed product, except multiplied by millions–is genuinely in the longterm public interest.

Otherwise they would carry about as much weight as John McCain’s repeated claim, on This Week with George Stephanopoulos this morning, that he is “a Teddy Roosevelt Republican.”

Bailout Extortion

Paulson, Bernanke

Treasury Secretary Paulson and Federal Reserve Director Bernanke issued only generalized warnings, if dire, in testifying at the Senate Banking Committee hearing yesterday. One question left unanswered was a big one–‘What exactly is the harm in not authorizing the smashing sum of $700 billion+ to bail out some entities in the financial industry?’

(Another big question not answered: Which entities would get the money, or the most, and why?)

The only itemization was some consumer lending—automobile loans, mortgages, and college education loans—with a few references to businesses lending money to each other.

Lending and cramdown

Tabling that second category for now, the argument about consumer lending seems to be that businesses will no longer be found—absent the $700 billion authorization–willing to lend Americans money for automobile purchases, mortgages, or college tuition. No car loans; no mortgages; no education loans.

My first response: Huh?

Not even a Hugo Chavez would be willing to help people in the U.S. buy cars, in the interests of sustaining the U.S. automobile, petroleum and highway sectors if nothing else? Says who?

Second response: This, if true, is extortion. If true, also, it has to be industry-wide and thus surely violates U.S. Antitrust law. Go, FBI!

(The FBI is launching investigations on Fannie Mae, Freddie Mac, Lehman Brothers, AIG and other companies, and on their top management and executives, for fraud. Let’s hope the FBI moves very, very swiftly. You know there is fire beneath the smoke when the FBI and Daily Kos are on the same page.)

DK

Setting aside the crime-fighting for the moment, it is pathetically obvious that our automobile industry at the very least does not have to be held hostage to Wall Street. While Sen. Charles Schumer (D-N.Y.) joined the chorus about the automobile industry at the hearing yesterday, there are clearly alternatives to bailing out (unnamed) lenders in the hope of a lateral trickle over to Detroit:

In simplest terms, if the administration is really worried about people not being able to buy cars, then by all means lend the U.S. automakers with monies they can use—to extend car loans to customers themselves–without going through some middleman entity of the Lehman Brothers ilk. Similar proposals have already been floated by Detroit.

Obviously, lending to giant automakers—or underwriting loans they extend—is less than the ideal solution. But lending money to Big Auto has to be better than giving money to Big Bankruptcy.

Same for education loans. If they’re worried about students loans drying up, if the powers that be are genuinely so worried about what might happen to student loans that they can contemplate a proposal like the bailout bill–then by all means lend/underwrite our institutions of higher learning themselves—either lend to students directly, at a reasonable, modest rate of interest; or extend the Pell Grants to save the (financially) bottom half of the college population from graduating in debt; or at the very least extend loans to higher education so that it can lend the money itself—without, again, going through a middleman like the Lehman brethren. Or some combination of the above. Every state has a department of higher education, btw. The states could help.

Ditto home mortgages. If a dearth of available mortgages really awaits, then—by all means, extend lending or underwriting to or through—picking a random example here–Fannie Mae and Freddie Mac. In fact, I thought they were doing that already. After all, these two entities are already under strengthened federal oversight.

Meanwhile, what happened to the old guidelines like ‘Never give in to a blackmailer. Not only is it wrong, it doesn’t work anyway’?

Note: The president is scheduled to speak on television in primetime tonight, to boost public support for the bailout. They are smart to have him wait until 9:00 p.m. (ET). If he did it during business hours, everybody in the nation could watch the Dow drop by hundreds of points during a 14-18-minute presentation.

Bush at war

And that’s without allowing questions from reporters afterward.

[This and the subsequent articles on the Wall Street bailout, deleted by the system among hundreds of articles and blog posts in summer 2011, are re-posted using archives and Word files.]