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Missouri, United States
I consider myself the "black sheep" of the family. I moved away from home when I was 19 and a year ago I decided it was time I moved back home....so glad to be among family and friends. I grew up playing the piano but haven't played in years. I have always thought outside the box, wanting to move to Boquete Panama, I am a tea party participant. I am a reiki master and I have 2 good guard dogs....a dachshund and Jack Russell terrorist. I go to alternative news websites daily for news (don't trust MSM to tell the truth). Operation mockingbird is a CIA operation that began in the '40's to control the media both foreign and domestic. This is why I go to alternative news websites. For an excellent article to read on the subject I suggest http://www.prisonplanet.com/analysis_louise_01_03_03_mockingbird.html

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Friday, August 27, 2010

Treasury Makes Shocking Admission: Program for Struggling Homeowners Just a Ploy to Enrich Big Banks

from RMN
Posted By: RumorMail
Date: Friday, 27-Aug-2010 15:39:24
Link:
http://www.luckinlove.com/treasury.htm

The Treasury Department's plan to help struggling homeowners has been failing miserably for months. The program is poorly designed, has been poorly implemented and only a tiny percentage of borrowers eligible for help have actually received any meaningful assistance. The initiative lowers monthly payments for borrowers, but fails to reduce their overall debt burden, often increasing that burden, funneling money to banks that borrowers could have saved by simply renting a different home. But according to recent startling admissions from top Treasury officials, the mortgage plan was actually not really about helping borrowers at all. Instead, it was simply one element of a broader effort to pump money into big banks and shield them from losses on bad loans. That's right: Treasury openly admitted that its only serious program purporting to help ordinary citizens was actually a cynical move to help Wall Street megabanks.
Treasury Secretary Timothy Geithner has long made it clear his financial repair plan was based on allowing large banks to "earn" their way back to health. By creating conditions where banks could make easy profits, Getithner and top officials at the
Federal Reserve hoped to limit the amount of money taxpayers would have to directly inject into the banks. This was never the
best strategy for fixing the financial sector, but it wasn't outright predation, either. But now the Treasury Department is making
explicit that it was -- and remains -- willing to let those so-called "earnings" come directly at the expense of people
hit hardest by the recession: struggling borrowers trying to stay in their homes.

This account comes secondhand from a cadre of bloggers who were invited to speak on "deep background" with a handful of
Treasury officials --- meaning that bloggers would get to speak frankly with top-level folks, but not quote them directly, or
attribute views to specific people. But the accounts are all generally distressing, particularly this one from economics whiz Steve
Waldman:

The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of
this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly
judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal
shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with "the system," "the
economy," and "ordinary Americans."

Mike Konczal confirms Waldman's observation, and Felix Salmon also says the program has done little more than delay
foreclosures, as does Shahien Nasiripour.

Here's how Geithner's Home Affordability Modification Program (HAMP) works, or rather, doesn't work. Troubled
borrowers can apply to their banks for relief on monthly mortgage payments. Banks who agree to participate in HAMP also
agree to do a bunch of things to reduce the monthly payments for borrowers, from lowering interest rates to extending the term
of the loan. This is good for the bank, because they get to keep accepting payments from borrowers without taking a big loss
on the loan.

But the deal is not so good for homeowners. Banks don't actually have to reduce how much borrowers actually owe
them—only how much they have to pay out every month. For borrowers who owe tens of thousands of dollars more
than their home is worth, the deal just means that they'll be pissing away their money to the bank more slowly than they were
before. If a homeowner spends $3,000 a month on her mortgage, HAMP might help her get that payment down to $2,500.
But if she still owes $50,000 more than her house is worth, the plan hasn't actually helped her. Even if the borrower gets
through HAMP's three-month trial period, the plan has done nothing but convince her to funnel another $7,500 to a bank that
doesn't deserve it.

Most borrowers go into the program expecting real relief. After the trial period, most realize that it doesn't actually help them,
and end up walking away from the mortgage anyway. These borrowers would have been much better off simply finding a new
place to rent without going through the HAMP rigamarole. This example is a good case, one where the bank doesn't jack up
the borrower's long-term debt burden in exchange for lowering monthly payments

But the benefit to banks goes much deeper. On any given mortgage, it's almost always in a bank's best interest to cut a deal
with borrowers. Losses from foreclosure are very high, and if a bank agrees to reduce a borrower's debt burden, it will take an
upfront hit, but one much lower than what it would ultimately take from foreclosure.

That logic changes dramatically when millions of loans are defaulting at once. Under those circumstances, bank balance sheets
are so fragile they literally cannot afford to absorb lots of losses all at once. But if those foreclosures unravel slowly, over time,
the bank can still stay afloat, even if it has to bear greater costs further down the line. As former Deutsche Bank executive Raj
Date told me all the way back in July 2009:

If management is only seeking to maximize value for their existing shareholders, it's possible that maybe they're
doing the right thing. If you're able to let things bleed out slowly over time but still generate some earnings, if it
bleeds slow enough, it doesn't matter how long it takes, because you never have to issue more stock and dilute
your shareholders. You could make an argument from the point of view of any bank management team that not
taking a day-one hit is actually a smart idea.

Date, it should be emphasized, does not condone this strategy. He now heads the Cambridge Winter Center for Financial
Institutions Policy, and is a staunch advocate of financial reform.

If, say, Wells Fargo had taken a $20 billion hit on its mortgage book in February 2009, it very well could have failed. But losing
a few billion dollars here and there over the course of three or four years means that Wells Fargo can stay in business and keep
paying out bonuses, even if it ultimately sees losses of $25 or $30 billion on its bad loans.

So HAMP is doing a great job if all you care about is the solvency of Wall Street banks. But if borrowers know from the
get-go they're not going to get a decent deal, they have no incentive to keep paying their mortgage. Instead of tapping out their
savings and hitting up relatives for help with monthly payments, borrowers could have saved their money, walked away from
the mortgage and found more sensible rental housing. The administration's plan has effectively helped funnel more money to
Wall Street at the expense of homeowners. And now the Treasury Department is going around and telling bloggers this is
actually a positive feature of the program, since it meant that big banks didn't go out of business.

There were always other options for dealing with the banks and preventing foreclosures. Putting big, faltering banks into
receivership --- also known as "nationalization" --- has been a powerful policy tool used by every administration from
Franklin Delano Roosevelt to Ronald Reagan. When the government takes over a bank, it forces it to take those big losses
upfront, wiping out shareholders in the process. Investors lose a lot of money (and they should, since they made a lousy
investment), but the bank is cleaned up quickly and can start lending again. No silly games with borrowers, and no funky
accounting gimmicks.

Most of the blame for the refusal to nationalize failing Wall Street titans lies with the Bush administration, although Obama had
the opportunity to make a move early in his tenure, and Obama's Treasury Secretary, Geithner, was a major bailout
decision-maker on the Bush team as president of the New York Fed.

But Bush cannot be blamed for the HAMP nightmare, and plenty of other options were available for coping with foreclosure
when Obama took office. One of the best solutions was just endorsed by the Cleveland Federal Reserve, in the face of
prolonged and fervent opposition from the bank lobby. Unlike every other form of consumer debt, mortgages are immune from
renegotiation in bankruptcy. If you file for bankruptcy, a judge literally cannot reduce how much you owe on your mortgage.
The only way out of the debt is foreclosure, giving banks tremendous power in negotiations with borrowers.

This exemption is arbitrary and unfair, but the bank lobby contends it keeps mortgage rates lower. It's just not true, as a new
paper by Cleveland Fed economists Thomas J. Fitzpatrick IV and James B. Thomson makes clear. Family farms were
exempted from bankruptcy until 1986, and bankers bloviated about the same imminent risk of unaffordable farm loans when
Congress considered ending that status to prevent farm foreclosures.

When Congress did repeal the exemption, farm loans didn't get any more expensive, and bankruptcy filings didn't even increase
very much. Instead, a flood of farmers entered into negotiations with banks to have their debt burden reduced. Banks took
losses, but foreclosures were avoided. Society was better off, even if bank investors had to take a hit.

But instead, Treasury is actively encouraging troubled homeowners to subsidize giant banks. What's worse, as Mike Konczal
notes, they're hoping to expand the program significantly.

There is a flip-side to the current HAMP nightmare, one that borrowers faced with mortgage problems should attend to closely
and discuss with financial planners. In many cases, banks don't actually want to foreclose quickly, because doing so entails
taking losses right away, and most of them would rather drag those losses out over time. The accounting rules are so loose that
banks can actually book phantom "income" on monthly payments that borrowers do not actually make. Some borrowers have
been able to benefit from this situation by simply refusing to pay their mortgages. Since banks often want to delay repossessing
the house in order to benefit from tricky accounting, borrowers can live rent-free in their homes for a year or more before the bank finally has to lower the hatchet. Of course, you won't hear Treasury encouraging people to stop paying their mortgages. If too many people just stop paying, then banks are out a lot of money fast, sparking big, quick losses for banks -- the exact situation HAMP is trying to avoid.

Borrowers who choose not to pay their mortgages don't even have to feel guilty about it. Refusing to pay is actually modestly
good for the economy, since instead of wasting their money on bank payments, borrowers have more cash to spend at other
businesses, creating demand and encouraging job growth. By contrast, top-level Treasury officials who have enriched bankers
on the backs of troubled borrowers should be looking for other lines of work.

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