All that I am giving you…. is the gift of time…. — kavips
What is a silver bullet? According to folklore it is the only thing that brings down a werewolf. Other bullets, indiscriminate of what weaponry they’re fired from, are ineffective against that monster who possesses an aura of impenetrable magic. Our collective wisdom of doing what we always done, of trying what has always worked before, bounces off the charging entity… As our ineffectiveness becomes apparent in face of our own annihilation, we find ourselves wishing for any magic item that could neutralize the evil about to devour us; something that could slip past, disable and kill it… To everyone’s surprise some unknown face steps out from the soon-to-be-annihilated crowd and fires one single silver bullet into the beast… The day is saved.
Today our global economy needs that silver bullet.
Appropriate measures must be taken to match the challenges set against us.
When one visits a physician to request his help against fighting a severe infection such as strep, staph, or even meningitis, one does not expect their doctor to limit the medicine’s dosage to a level that just barely keeps one from dying; one goes to get cured…
Here is an example of a conversation that one hopes never to hear in a hospital room:
Physician: “Your tests show us that your infection has now reached 99% of the lethal level… Untreated you cross the hundredth percentile in three days and die… We have determined that all you need is 2 micrograms of this antibiotic, which should just kill off 1% of the infection and keep it from growing any further.. As it grows a little, we will kill off a little, and thereby keep your total rate of infection from growing further and holding your lethal level at the mark of 99%. We are worried that if your body gets too much of this antibiotic, some of it may be wasted and pass through your system, and entering into your urine stream without being used effectively. Your insurance company, who I remind you is paying for your medicine, insists that we follow this procedure so they do not flush any of their future profits down your plumbing, if I may put it delicately.
Patient: “Nice meeting you. I’ll find a new doctor now.”
For those not clued in, the Physician represents those Republicans and conservative democrats more focused on waste than on survival. The patient is the global economy.
Survival makes mincemeat out of old priorities. Any paramedic who has pulled out a human being from a burning car, knows full well that there is a time and place to worry about a potential back injury. Burning the victim alive for fear one might damage his spinal cord, is a misappropriation of priorities. Any top gun pilot knows that when entering a dogfight with two boogies on one’s tail, it is not the appropriate time to worry about the taxpayer’s investment lying in each missile underneath his plane’s wings. Exiting the dogfight in order to save millions of dollars is a misappropriation of priorities. Every citizen should know a little about the Heimlich maneuver. When a guest sitting next to you is obviously chocking, and because of your indecision has begun to turn blue,… to not attempt to save him because your inexperienced pressure might break one of his ribs… is a misappropriation of priorities.
The global economy is in a desperate situation.. To not do what is necessary to fix it, because it may cause taxes to rise in our future, is likewise a misappropriation of priorities….
Here is a quick review of those points previously mentioned. 1) We need to appreciate the scale of our sickness: our economy from top to bottom is about stop working. 2) We need to understand that we, the American people as well as those scattered across the planet looking towards us for leadership, don’t care how; we just want the infection to go away… 3) If we don’t die, once healed we can deal with the costs down the road….
Just heal us.
It is no secret that our crises was aggregated by mortgages. Nor is it a secret that the American large banks are the ones responsible for leveraging-out our global economy on the junk of unpaid mortgages. The collapsing housing market itself is a small bump in the road. But basing our entire economic structure upon the marketability of those collapsed mortgages, with the premise that their value would always rise, is the real scam perpetuated by our domestic securities brokers.
What our securities industry did, today defies belief, logic, and common sense. What they did was market unpayable mortgages as being worth lots of money. Despite it’s insanity, those unpayable mortgages were further leveraged at rates 40 to 1 in some cases. As the “one” collapsed; so did the “40″ loans which were collateralized with it…
Today people are out of work, because of the securities executive’s lapse of judgment. Today our automobile industry is expiring because of what these people did. Today most of Europe’s banks have been nationalized, because of what these people did… Tomorrow, our taxes are going to be out the roof…. because of what these people did…
As one looks at the facts of how we got here, one gets angry. As one gets angry one looks towards quick justice to punish those responsible. As one looks towards quick justice, lynchings of greedy financiers begin to look rather promising…. Make them pay with blood….
It wouldn’t be the first time. Heaven knows they deserve it.
But we can learn something from those societies who repaid years of poverty with the actual blood of those who financially raped them… Long after the bloodletting was accomplished, they were still in poverty… In fact, leaving no one left who was competent enough to run the finances of their nation, their poverty extended down to absolutely every one living within those borders, for generations after generations…
Recent memory of the Soviet and Chinese blood lettings are examples how such unfettered justice can bring any nation to its economic knees, forcing it into some form of totalitarianism just to maintain any sense of order. North Korea is another example of what happens when a nation is run on anger; as a result, living conditions there are deplorable.
Perhaps a better tack would be to take a conquered population, and use them to help ourselves from out from our quagmire.. To do so would require forgiveness, a trait often associated with America by others living on this planet…. Proof of the effectiveness of forgiveness can today be seen in the rebuilt economies of both Germany and Japan, and to some extent… South Korea. As we saw from our earlier chapter, helping these nations achieve and regain their former prosperity, was one of the best investments and execution of policy ever made by this nation.
Today, we now apply that same tact and wisdom to our own financial internal problem.. It is to our mortgage brokers who we must now turn to bail out our nation; forget our congressional delegations.
It starts with this simple question. What would it take to cause a household to spend again?
Basically it would take a breather… a collective sigh of relief by everyone out there who is behind on their payments. What if ….. they were allowed to skip maybe a payment or two? Just to get some utility bills paid down, some credit card debt back under their cut-off lines, perhaps pay off the new heater, or new stove they were forced to buy. What if….. they were given 3 months with no mortgage payment and could then use that amount to catch up on their personal finances?
Then after three months, with their entire debt portfolio restructured, they could begin resuming payments and finally with sufficient money at their disposal, continue to pay off the entire loan including the added interest which accrued over those three months perhaps tacked on to one last payment at the loan’s end….
There is a surreal beauty in this arrangement. The homeowner who has fallen behind three months, can now catch up.. The homeowner who is out of work, can survive hand to mouth for at least three months without worrying about his mortgage. The homeowner who is still current on his payments, can take care of other financial matters, and pay off his unsecured (credit card) debt currently robbing him blind with its high interest rates. Those doing rather well, suddenly have an opportunity equivalent to a tax refund they weren’t expecting.. They can spend it pumping much needed money into the economy. Those investors (banks or mortgage brokers) who put up the money, actually turn out to make more off of the original loan than was ever anticipated due to the compounding of the three month’s interest,… giving them a much higher margin on their return… The economy of the United States of America, after 90 days, has completely emerged out of its recession.
More details…. please.
The idea was simple. Instead of solving the economic crises by looking at the macro scale, we went to the other end and asked this simple question to a number of families… What do you need to get back on track? Our moment of truth came when one family head said: ” Really, as long as my job holds out, all I need is to skip a couple of mortgage payments… After two months, I’ll be caught up” Naturally everyone in the room looked at each other and thought, “Damn, that would work for me too.” The more we thought about it and explored it from different angles, the better it looked from every perspective.
1) It frees up a large chunk of monthly family income.
2) It does not add to the national deficit.
3) It does not require any new investment.
4) It actually makes more money for those holding on to the titles.
5) It increases spending where we need it… on the household level
6) That spending can begin immediately, in most cases on the first day of each month.
7) It rewards those who have kept up on their payments; and brings back to neutral those who are behind; and freezes foreclosures.
8 ) Once put in place, it immediately reinstates confidence in America’s banking system.
This is almost too good to be true. In fact it took a lot of probing to find any negatives that might arise from this action.. The only negative impact which we could discover was that some small mortgage companies rely on monthly payments to meet their payroll.. If that action was counteracted by part of the $900 billion dollar stimulus package, there would be …. no negatives.
So we began to estimate the impact… to see whether its glowing results would hold up….
We should remind ourselves just how important the US economy is to the economic function of the global economy. To put it into perspective, the Federal government guarantees roughly half of the $12 trillion dollar US mortgage market through Fannie and Freddy: roughly $6 trillion. For comparison purposes only, the entire 27 member states of the European Union in 2006 had an annual GDP of slightly more than $12 trillion, so the $6 trillion already guaranteed by the Fed, would be half the GDP of the combined European Union economies, and almost three times the GDP of the Federal Republic of Germany.
So if our nation’s total mortgage amount is $12 trillion, the Federal Reserve reports roughly $500 billion per month is listed in this nation as a receivable from real estate…. Percentage wise, that is only 1/4th the consumer debt of this country which is almost $2 trillion dollars per month…
So let’s play: “what if” just as an intellectual exercise and see how a one month mortgage holiday pans out….
As of last summer, 11.46% percent of our personal income was tied up feeding our mortgages. If we were to establish a mortgage holiday, what we are discussing is the release of ten percent of our personal income, or roughly half a trillion dollars into the economy each month. There is no way the US Government with its annual intake of $2 trillion, could finance something so massive. But, just by extending everyone’s mortgage for just one month, presto, we suddenly have it in our financial system. Since the monthly GDP jumps between four and five trillion, we are speaking of a substantial jolt to our economy, sort of like an economic Heimlich maneuver with no serious side effects. And if we do this three month in a row, …. 1, 2, 3,…. the recession is gone.
How does this affect the mortgage industry? For one, they lose $500 billion each month for three, for a dip of 1.5 trillion… But, under this plan, all we did was just postpone the payments, not…eliminate them… That same 1.5 trillion WILL BE PAID at the end of the loan as well as the interest that accrued upon it.. Which means that an extra payment will probably be added… Instead of catching up on three payments, we will at the end of our loan’s original expiration date , probably pay four.. an affordable sacrifice to be sure… At a .5% monthly rate (6% annually), the interest on that 1.5 trillion amounts to $7.5 billion a month.
How does this impact financial brokers?
As we saw above each month the mortgage payments make up one fourth of financial brokers income.. The other three fourths are represented by loans to consumers and business. Therefore this action will put them 25% down for just three months… Too high of a cost, perhaps?
Perhaps not. All across this country most businesses are down between 25% and 40% percent as a result of the derivative scam perpetuated by these financial institutions. And now that we have an option to pull ourselves out of the recession in as little as three months, with a $1.5 trillion boost to our economy that affects no one really and actually makes money over the long term of those loans still outstanding, and we fail to exercise that option because the whiners who brought us here, don’t want to suffer their share of the 25% of pain felt across this country?
Well? No pity from this quarter.
Today we are misguided in how we are dealing with the toxic mortgage crises… The U.S. Census chart 1152 shows us the problem, its cause and its solution.
Courtesy of US Dept of Census pub.1152 (Right click for full image)
Notice only a $2 billion dollar difference in the household sector between 1990 and 2007….Next look at commercial banks and the jump in their mortgage income from 2002 to 2007.. Notice how the heavily regulated savings institution sector was much more conservative. Next notice the GSE’s ( Fannie and Freddie) jumped 186% in one year between 02 and 03 and since have been cutting back.. Notice how the private pools and security issuers have swelled the market.. All the while the household sector remained constant.
This chart shows that the debt held by these pools is not real debt but was arbitrarily bid up by financial institutions over the past four years… In other words if I have $10 dollars of bad debt that I’m stuck with, that at maturation might be worth $20 someday, and I sell it to you for $15 dollars, after which you then bundle ten separate $20 dollars bundles of debt together that will be worth $200 dollars someday, and sell them for $175 to someone who buys ten $200 bundles and conglomerates them into a bundle worth $2000 but sells them for $1850….. well, you get the idea… and the product being sold is worthless by itself. We discover that fact rapidly when we finally reach the point where no one wants it…
So we are now at the point of discussing whether to bail out banks that bought much more then $1850 of that bad debt…and now that they know it is worthless, they want to sell it to the government (future taxpayers) at their costs….$1850…. Originally the number of $10 debts we used should have fetched $1000, but the bidding war has them now priced at $1850… Which means that: the $850 has already been pocketed as profit by those along the process.. So in the large perspective of things financial, all that this bank bailout amounts to is: …. taxpayers borrowing money at interest, to pay for the previous profits made by financiers…
Bottom line… since we need those financiers, we may have no choice… The alternative scenario, that of “The Great(est) Depression”, scares us even more….. For when 57.6% percent of home mortgages suddenly go into default, that creates a massive shock for our economic system to handle… No civilization ever studied, has remained intact after suffering an aftershock of that magnitude….
The problem and causes of this crises are now hardwired into those financial institutions. But embedded in this chart is not only the magnitude of the problem…. but a clue towards its solution as well. As one sees in this chart, the outstanding debt up to now has climbed… But getting an extension-of-three-months does nothing to alleviate or increase that amount of outstanding debt… For if no payments are forthcoming, and no additional loans are written across that time frame, the aggregate amount remains constant over the entire span of the three month holiday. The level of outstanding debt is not impacted by the policy of “not-paying-of-one’s-mortgage”, except of course by the interest that accrues over that additional amount of time… If you owe me $500 dollars and don’t make a scheduled payment, you still owe me $500 dollars, plus the interest. At the loan’s end, after all the principal is paid off and the additional interest is pocketed by the lender….. There is no overall negative impact.
So let’s review. If we give ourselves a mortgage holiday for three months, we put a stimulus amounting to $500 billion dollars per month into the hands of households. In three months, $1.5 trillion will have flowed though the consumer side of our economy. Jobs will need to be quickly added to accommodate that large influx of money into our system… Those earning money with these new jobs will of course be able to buy more, and the economy begins growing… This stimulus begins instantly on the first day of the month.. Everyone’s checking account is not deducted by their usual mortgage amount, and that money is instantly available to be spent towards other things.
Why three months? If two are necessary?
Again based on interviews with families, the data was presented in this fashion. During the first month, the most pressing bills, including utilities and collection agencies’ unpaid medical and credit card bills would be paid. As per the Bush tax stimulus check, the first month would show little spending. The second month would allow further catching up of other bills, and provide a little excess left over which could then be spent…. The third month, that entire extra amount would be available for spending… By the end of that third month, the economy would be roaring again…
I’m curious as to whether or not you the reader feel the same… In our interviews we came across no one who was not excited by this prospect… Further controlled studies can be done by others who want to compare the enthusiasm between receiving a stimulus check for $500 to that of not paying one’s mortgage for three months. Our results showed skepticism towards the tax check, and popular enthusiasm towards skipping one’s mortgage….
Would not paying your mortgage for three months get you back on your feet? And would you mind tacking on one more month’s payment at the end of your loan, for the privilege of getting your head above the financial flood swirling around us all?
As we looked at all the data and perused all of the options we could anticipate, this model became the closest thing in recent memory to that metaphor commonly used by today’s politicians: a win, win, win situation… And it pulls the economy out of its doldrums without that tremendous amount of government borrowing that percentage-wise, rivals our nation’s indebtedness during and after WWII…..
The concept is new when used on this scale, but it is really based on ancient tried and true principals found at the heart of our financial markets. It’s simple.. If one is bankrupt, it is better to get a little breather, than lose everything… Our global economy is bankrupt. Getting a loan extension on the U. S. Home Mortgage debt for everyone at the same time is unheard of, but can, if chosen, be accomplished rather easily. Extensions are processed daily for individual loans around the country. Even Donald Trump’s empire would not be here if this type of extension had been forbidden during the late 80′s. We are just extending the loan for three months, and making every financial institution more money by doing so…
So who is out there who might oppose this?
Our best guess? Moralists, idiots, and bigots. The rest will see this opportunity as being beneficial to themselves, to their unemployed neighbors, to the stability of our financial institutions, to the country of the United States of America and eventually to the global economy as this nation pulls its head out from under the cloud of recession far faster than anyone ever imagined was possible…
All by just postponing three months of everyone’s mortgage.
How do we do this then?
We came up with three ways, each dominated by a branch of the Federal Government.
Congress could briefly debate and vote overwhelmingly to postpone all single family mortgages for three months. But there may be some bogging down on some of the details.
Or the President could sign an Executive order and issue a directive that his Justice Department would not pursue and would overturn any lower court case punishing non payment of mortgages that occurred during the three month holiday… Effectively no one could collect from an unpaid mortgage, because under US Commerce laws any state ruling contrary against the three month mortgage holiday, could be overturned by Federal Court…
Finally the courts themselves could take it upon themselves, case by case, through either a judge’s or juries’ decision, that not paying one’s mortgage payment during the declared mortgage holiday was not only legal, but one’s patriotic duty.
In any of the three scenarios anyone attempting to collect upon a holiday mortgage payment, would be guaranteed to ultimately wind up paying all court costs, making the attempt to collect, pragmatically fruitless.
Secondly, there is precedent for closing financial down financial institutions and stock markets, whenever the market is spiraling out of control… Upon his inauguration, FDR promptly closed all banks until further notice. Surprisingly none of those closed banks lost money while they were closed… Only open banks facing runs, lost money.. Likewise, we remember the closing for several days of the New York Stock Exchange after 9/11…. While the market was closed, no stocks lost value… The same principal holds forth in putting mortgage lenders on holiday… Ultimately, as it did with banks and the markets, it restores confidence in the entire financial sector.
The moratorium placed on three months of home mortgage payments will get the attention of every financial markets. Coupled with other parts of the stimulus package, and with forecasts that in three months the entire American economy will be back to normal, as well as knowledge that financial institutions stand to make an additional month’s income on all outstanding mortgages, our lending institutions will appear well positioned to reap any future profits… People will certainly be less skittish about dealing with commercial banks, as the money begins to cycle around and around… once again…. If you had the choice of investing either in the US or China, after that $1.5 trillion began flowing….. the United States, would certainly appear the safer bet…..
One additional benefit from arising from a three month mortgage holiday, is that it forces banks into more lending to both businesses and automobile purchases… If no income is incoming from mortgage payments for three months, then all new loans default to becoming the primary method of generating income. Every bank would be forced to scramble in order to find those new customers who were trustworthy, willing and able to borrow its money…. Those who simply sat on their assets for three months while doing nothing, would fail.
So even though the description itself has become a cliche, if there ever was a “silver bullet” developed that would kill a recession dead, it would be this one… : a three month holiday on paying one’s mortgage….. Just try thinking of what you could do if you didn’t have three months of mortgage, and you can plainly see… it would boot up the economy without swamping our children with governmental debt.