Frank Louis
You're no George Bailey, Mr. Bernanke
By Frank Louis
April 16, 2010

You know, the more I read, the more I hear, the more this all drives me crazy. First, I will say that, beyond a shadow of a doubt, I am an unflinching capitalist. You know: supporter of a free market; small government, all of that stuff. I also believe in the Christian Principles the founders based our laws on. But the more this man (Ben Bernanke )comes on the air and addresses congress the more I see the deep and wide chasm that exists between working people and those that look at all of this as being some exercise in creating and selling products. Ben, wake up, you too Barney Frank. What happened to the Christian Principles? Barney... anyone? Ben?

As I write this, I hear on my TV behind me, foreclosures are at all time highs "despite President Obama's mortgage modification programs." Read back in our previous articles, you will know why. The foreclosures jumped as much as 35 % since the beginning of the year. Is something not working? They then, in the same breath, say how the market is up and the economic crisis is behind us. Are they nuts?

At the risk of sounding like some tree hugging, warm and fuzzy environmental protectionist, I will, in a moment, use a raw material analogy that well expresses my point of view on all of this. And, as we always say," If you think I am wrong, let me know. I don't think you can!"

Somewhere along the line, the whole reason mortgages were even created became misplaced. Mortgages used to be written so that people could purchase real estate. Now, we hear the mortgage referred to as a "widget" in congressional hearings by those in the business. Fortunately Rep Thomas (R AZ) corrected the gentleman on this note during the hearing. My friends this is not a widget. It is a means to buy a widget; the widget being property. But somewhere, the mortgage became the focus, the product to be marketed, not the property. The folks who bought the property, they were just a raw component. The focus became the reselling of these "widgets" and the folks who bought the property; well they were just another piece of the production process.

So, not to sound like some environmentalist, but... writing a mortgage, I hate to say, became like mining, logging, or harvesting any other of our natural resources. Find 'em, grow 'em, harvest, gather, collect 'em, box 'em up and sell 'em. No concern as to whose ever "natural habitat" you destroyed in the process. Heck, birds can always find new trees to nest in, right? Who thinks about the worms in the dirt when they dig a trench? Writing and selling mortgages became the emphasis, not the property, not the buyers. If, in the end, the buyers and/or the real estate could always go into foreclosure, into bankruptcy, solution to the problem solved the bookkeeping works... widgets.

As we well know, many buyers were also fabricated. Often they were nonexistent, "straw buyers" (is what they are called) created with stolen identifications by realtors, by mortgage brokers, by lawyers, by those in the industry. These "buyers" were not created by Americans "overbuying" I am sure. "Foreign investors" they often were. And combined with the no-doc, no money down loans, there were enough of these to make the alleged values of real estate go up. No matter how much due diligence we American buyers did, we could not have uncovered this lie. It was well hidden in "innovative" ways.

Ben, Larry, Barack, anybody, did it ever occur to you that this is the crisis, not anything else? Not Americans who over bought and paid hundreds of thousands of hard earned dollars in down payments to do it only to have it stolen.

Throughout all of this, I have come to realize that you people are all "over-talking" the problem. We were not "over-buying." You are "over-talking," quit it.

And where is Vin Marzullo from Countrywide? He is not on TV every day anymore is he? Now it is some other mortgage guy; making more commissions. Where are the others who cheered this on and developed more and more questionable loan products to grow the raw materials for the crisis; property and buyers? Why can't I find a lawyer who wants to represent me and all of us and get our money back from the "investments" that turned out to be a Ponzi Scheme. Are we not "too big to fail?" Why can't Sen. Frank figure this out? Why can no one figure this out? Hannity, Rush, O'Reilly? They still stick to the "Americans who overbought" theory. Actually, some did but not all, believe me.

I have broken it down to three groups of real estate investors in this crisis:

Group 1: Fake buyers. Often "foreign investors;" the ones only we seem to write about, the ones only I talk about every week on my radio program. The buyers who did not exist except on paper, invented by realtors and mortgage brokers. The ones who pushed prices up but never made a single payment. The ones those same realtors and mortgage brokers collected their sales commissions on. Perhaps you could say they overbought. I think that would be pushing it.

Group 2: The sub-prime, no-doc, no down payment buyers who had no business buying. These people were brought into this for any number of reasons including but not exclusively by predatory lending but many for not-all-so-righteous reasons as well. Many played the system and had such poor credit scores to begin with that they really had nothing to lose in this. Perhaps they had no long-term commitment to their involvement. Perhaps you could say that hey overbought... maybe, if "bought" is the correct word. However, this seems to be the only group any "loan medication" programs are targeted at.

Group 3: Americans who had saved, worked hard, put 20% or more in down payments on real estate (investment or otherwise), filled out actual loan applications, did their due dilligance based on the false, dishonest disclosures the banks and real estate industry provided. The people who bit the bullet put their money down because they were informed that the prices were what they were. The people whose crime was to be in the real estate market while this scam was going on unbeknownst to them. These Americans were not told about group 1 or group 2 at closing. If they had, do you believe they would have bought, put hundreds of thousands of hard earned dollars down on real estate only to have it all be a big April Fool joke? I do not think so. These people did not overbuy. They qualified for mortgages based on their ability to pay and the values the professionals told them the properties were. These people were set up, robbed. Now the real estate is worthless, they cannot sell it, they cannot rent it, and their life plan was torn out from under their feet. Barney, what about them?

No one talks about group 3 for sure, a very few talk about group 1 and the focus seems to be on group 2, the ones we are told were oh so wanting the American Dream. It is all bogus! We in group 3 want our money back. We want our credit scores back. Now! This is wealth redistribution.

George Bailey made loans so people could buy property, not to create packages of mortgages to sell them. It was a Christmas movie if you do not know what I am talking about: It's a Wonderful Life, Frank Capra. Watch it if you never have. It seems to show, quite well, where we are headed. Am I over simplifying the problem, perhaps? Am I correct, you bet!

George Bailey did not write mortgages to straw buyers to drive up real estate values just to sell the mortgages off in the Secondary Market and walk. Even Mr. Potter seemed to be above that. Ben, Larry Kudlow, Diana Orlick, have you made this connection yet? Diana, what was your Emmy in journalism for anyway? It surely was not for your investigation into this crisis.

The cause of the housing crisis is the way mortgages were treated; as a product to be sold, not as a means for people to invest in real estate. Now, through foreclosures and short sales, we are creating a new avenue for Realtors and Mortgage Brokers to make sales commissions on both the initial sale of the property then again when it goes into foreclosure. This at the expense of the people who were making investments with hard earned down payments. Sometimes it is the same realtor and mortgage broker doing both transactions. Wrong? Maybe so, perhaps. Why is no talking head in the media mentioning these facts? Why, because they would have to admit their guilt or at least their complicity and walk themselves to jail.

As I write this, Obama was just on CNBC talking about financial regulation and "too big to fail," commentator John Harwood interviewed by Larry Kudlow both discussed what they believe to be the big picture. They are all wrong. Who is "too big to fail" is the American public. The folks whose economic situation, other than to be mentioned like they were the coal in a coal mine, are somehow overlooked in all of this discussion. Face it, those boxes of mortgages that were resold in the secondary market, they are, for the most part, trash. Take your losses on those secondary market products and stop taking property from people who have placed hard-earned down payments on their investments. Face it, these mortgage backed securities are the problem, not the real estate. These securities were the bad investments, not the real estate.

We vote and we do have the ultimate power in all of this but we just do not see it as we are not organized in some large group or union. But we all pay "dues." They are called our mortgages and our bills. We can all just stop paying our mortgages, stop paying any and all bills. It would take some courage and stocking of supplies in the basement but we could do it. But then, everyone would know just who really is "too big to fail." Even if we don't do this on purpose we may be forced to do it anyway if unemployment keeps going up and property values keep going down along with our credit scores and personal worth.

There is no program that will work to solve this crisis short of the Short Keep and the Cash for Keeps programs we discuss weekly. This program is targeted at what I have shown as "group 3" in my illustration above. Values are what they are, the banks know this, we know this. A property's value is only what other properties are worth in foreclosure, or at a short sale. Want to stop the crisis? Lower everyone's principle (tomorrow) to what the property would bring (today) in a foreclosure or short sale. Then let the people who made down payments, who made real mortgage applications keep them. If this does not happen, values will continue to go down in a slow and painful process and the talking heads can continue to discuss the alleged "Americans who overbought." No one will any longer be "credit worthy."

© Frank Louis


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Frank Louis

Frank Louis is a print and on-air commentator who offers opinions and solutions on and for the economy, social issues, and the future of this nation. In the Old Testament, Nehemiah 4: 14 instructs us to fight for our houses; something we need to be doing now. Our future generations depend on it!... (more)


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