Web Letters | The Nation

Re 'The Bank of America Mortgage Settlement Fiasco'

No Logos,on the recent attack on the euro

From March onwards I have written a book on the attack on the euro, an attack without logic. Seemingly, that is. The US of A is in a tight spot, walking a tight rope, clinging on hope for the better while behaving at his worst. What we read in the flabbergasting story of Countrywide is another affirmation of the lack of logic within the checks and balances among US authorities, where the Fed, the FDIC, ministers and policymakers and the entire ramshackle structure around financial well-being of the State and customers is, well, running amok, really.

For the big banking businesses suffering terminal cancer with infusions of mega-dollars to stop the hemorrhaging within have a new scandal to cope with: Countywide. Quintupled its outstanding debt in six years from $ 650 billion to a whopping $ 3.8 trillion. Whoops, and still no alarm bells ringing! In the end, going through a lot of denial and what not, BoA, the new owner of Countrywide, choose to beggar thy neighbor once more and collected some taxpayer money: $75 billion of it. With this shear endless queue of freeloaders on the (future) money American people earn, it is no longer feasible this country will be able to get back on track anytime soon. If I were to predict the future, I would bet on the dollar, short. Some of those too-big-to-fail banks and hedge funds, well, they will be raking in masses of money, payable in yens I suppose, in yuans perhaps...

And so now we have entered a war among countries over how to price the respective currencies, the US $ against those of China, Singapore, Japan and because of what reason you gather? Because of cheap dollars, plenty of cheap dollars, for the Fed chose to lower the interest rates to near zero. A roller-coaster string of events, cliffhanger after cliffhanger: is Hollywood writing this "epic" story of crooks or is Wall Steet doing that?

Next question: when will those American cowboys take another wack at the €uro?

Re 'The Bank of America Mortgage Settlement Fiasco'

The real cause of financial meltdown and foreclosure disaster

If you bought 100 jugs of milk at $3.50 per gallon and the last one on sale for $2 in your local superstore, what is the total value of the money you invested in milk? If you answer is $352 or an average of $3.49 per gallon, then you are very stupid and uneducated, thus incapable of leading any major company in the USA. However, if your answer is $202, then you are a brilliant economist fully qualified to head the financial giants like Fannie Mae or Freddie Mac.

See, that is exactly how those two enterprises have directed the banks, the mortgage brokers and the appraisal companies to evaluate the real estate market in the USA.

Fannie Mae and Freddie Mac have insisted that if just a one percent of the milk reserves was sold during the last twelve months at $2, that’s the market value what supersedes any previous history or investment.

Now, let’s go back to real business of Fannie and Freddie—the house mortgages. Fannie Mae and Freddie Mac don’t care that they are directly responsible for all the debt generated by the failing mortgages. They insist that the real market value is created not by an average price but by the last few sales. If the last sales happen to be generated by the people in great financial distress or by foreclosure, our two mortgage giants (with the unlimited and unconditional financial backing of the US Congress) don’t care. They instructed their subordinates—the banks, the mortgage brokers and the appraisers to proceed as if those were the real prices.

As soon as other people realize that under such conditions (and steeply declining prices) they owe more to the banks than what the equity of their homes amounts to, they are not motivated to keep those houses any longer; so they abandon them, and the supply of the foreclosed homes pushes the price even lower, to the great delight of Freddie and Fannie. They like to be burdened with the debt nobody wants.

Now, if you are really fiscally responsible, want to keep your house and try refinancing to get a mortgage with a lower interest rate, Freddie and Fannie will prevent you from doing it. Although your debt was only 75 percent of the tax value and you were sure there should be no problem in getting approved, under new guidance of our financial giants, your application will be denied because the foreclosure-driven market claims that your mortgage is now at 85 percent of home equity—which prevents you from getting a better rate.

Basically, Freddie and Fannie believe they are more likely to get their mortgages paid back if interest rates stay at 5 or 6 or 7 percent in lieu of 4 percent. That’s what their strict guidance implies. If this is happening to somebody with a stable job and a credit score above 800, what kind of treatment should average Americans expect from Freddie Mac and Fannie Mae?

There is a simple mathematical method that would have prevented both the housing bubble and steeply declining prices. If the housing market value were calculated by using the average of  sales within the last ten years, this method would keep housing prices stable and reliable without sudden drops or unwarranted peaks.

Of course, this is a method that should be used if the government had the intention to keep Americans in their homes. However, if the objective is to force them out, buy their homes cheaply and then rent those houses back to the same people, then the White House, Congress, Fannie Mae and Freddie Mack are doing a heck of a job.