Obama Wants to Control the Banks

"Obama Wants to Control the Banks
There's a reason he refuses to accept repayment of TARP money."

STUART VARNEY Wall Street Journal

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Obama Administration and TARP 1 Reimbursement

TARP 1 is a case where the government forced the leading domestic commercial banks to do something that the well run banks didn't need or even want to do. But even though competently run, these banks had to take TARP 1 money to obscure the banks that took the money who really did need it.

Imagine if tomorrow one of the top ten domestic commercial banks comes out and states publicly two things.

A. It does not need/never did need TARP 1 and is giving it back.

B. It also recognizes that the TARP liquidity injection has not worked at all, therefor a better solution would be to allow healthy banks to compete for the market place.

The healthy banks of course would repay TARP1 money immediately and protest loudly if the government refused to take the money back.

The weak banks? They would be silent or stammering about how its a liquidity problem.

The public would get the hint really quick. The banks that got TARP 1 and needed it would fail- and the public would have had it up to their eyeballs with the entire bailout process. 60% of American registered voters no longer supported TARP I or a TARP II. The issue of the reinsurance costing far more than expected has wiped out TARP 1 funds anyway-as much as 38% more than originally thought.

It is time for the reinsurers- also known as AIG to pay up with their own investment pool instead of collateralizing taxpayer monies. AIG owes banks big. If AIG fails, several of Europe & China's biggest banks and re-insurer firms will collapse as well. It will send Europe and China straight into a severe recession. But it won't cost the American tax payer another $2 Trillion in public debt load. The cascade of bad American banks would be impressive to see failing. The rumor mill is 4 of the now 10 top American domestic banks would indeed fail were it not for TARP 1.

Let them fail.

It would mean liquidity for free. Instead what we have right now is liquidity for public debt. The fact that liquidity isn't the real issue is another issue. If it was liquidity in the first place, then ramping up $2 Trillion in public spending in 10 years, directly providing cash to the banks via TARP I, and the issue of the US Treasury "printing" nearly $1 Trillion in unbacked Federal Reserve Notes should have improved the credit markets or lending to commercial enterprises.

Economists in The Economist are starting to point out that this hasn't worked yet. The GAO agrees.

But then again, that doesn't seem to be the point. The point it would seem is to indirectly control the entire American commercial banking system by directly having federal ownership in the top 10 commercial NA banks. The federal government may be a minority holder, but its stock is an entirely new classification of stock never before seen in the American capitalist markets. It isn't a common stock, a preferred stock, a non-voting stock, or even a bond stock. Instead it is a stock that acts as an identification for specialized treatment.

If a company with this identification doesn't follow the government agenda, then it can see its executives fired, earnings taxed at 90%, or otherwise see day-to-day control removed from the other owners of the bank. If they do follow what the government wants as policy, then the bank gets tax payer funded cash infusions and an almost virtual assurance that the bank will never be allowed to fail.

So when you have a bank attempt to give back money- especially now that no one is even remotely worried about any bank runs or bank holidays, you have to wonder what utility is served by refusing to accept back a gift that wasn't needed in the first place.

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Printing Currency

If liquidity is the problem, then why not take the 787,000,000,000.00 and print the money for each citizen?

That would be roughly 320,000,000 give or take considering some people cannot be found, some are invested in grey market activities, and some are in prison as convicted felons.

So that would leave roughly $2,400 for all those people.

If cash flow is the problem, and a lack of printed paper money available to meet the created wealth via production, then giving all citizens $2,400 should solve the problem.

For some it would be 2 52" Vizo LCD flat panel tvs. For others it would be the tax/tag/title on a new GM car. For others it would be nearly two months mortgage for a median house. For even others it would be new computers, clothes, food, etc.

If the real problem is liquidity of paper currency and availiblility of paper currency, then a government "stimulus" of pork pet projects isn't really needed.

Somehow I doubt that it would work. We gave taxpayers what? $1000 in rebated taxes? And it did almost nothing. As a matter of fact it did make matters worse. Because upon being given a rebate by the government, many people assumed correctly that if the government was giving back tax money, it was because the economy was in trouble.

Most people simply used the money to buy down debt.

This is just stupid.

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If the economy is really bad?

I always wondered why the difference for the past couple of years the answer to the polling questions as to your own personal economic reality, and your perception of your neighbor's economic reality. It gets brought up cyclically in the media. I have no idea what college or group funds the poll, or even how to find the latest one. But they have been asking it for decades.

That said, the last time I heard about it was during the election. In short when asked how their own personal economy was going 90% said they were fine. When asked how they thought their neighbors were doing, the same respondents declared that 90% of their neighbors are having problems.

Think about it. 90% of people think that they are doing fine- but- 90% of their neighbors are doing badly. Which leads to an interesting conclusion. The current economic crisis may indeed be a media driven perception of events. In my own circle of people, those who watch MSNBC or CNN have been bemoaning the state of the economy for almost five years. Declaring how bad it is for every person, without ever taking into account that they themselves and everyone they know is neither better off or worse off in any substantial measure. I personally think that this perception has indeed become reality. And I have seen it first hand and watched the results.

Now mind you, in my particular circumstance it has been of some benefit because were builders and subcontractors not running scared, I would have been unable to rebuild my house as quickly as I did, or even at the cost I eventually had to spend through the process. People are simply holding off buying or purchasing anything or entering into any risk venture. I think it is mostly due to media.

Compared with the Carter years, the events of today don't even come close. You aren't seeing unionized industries collapsing wholesale. Partly because the union collapse of Carter's watch were ultimately permanent. Shipping, transport, automobiles, shipbuilding, steel, and unionized skilled trades all got swamped by better and generally more efficient free labor models. So today, we aren't seeing whole industries collapse both in terms of job loss and the permanent disappearance of jobs. Those loses happened 20 years ago. We are not seeing credit markets for even people with good credit collapse as they did back then either. If you have a credit card with a 20% interest rate attached to it currently, it isn't because that is the lowest rate as it was during Carter. Rather, if you have a 20% interest rate today, it is because you are incompetent with money.

People with even average scores can get, and are getting interest rates on 30 year fixed conforming loans of under 6% right now. Back during Carter, people with 760-840 credit scores were getting 13% interest rate loans only after paying 20% down and 3 to 5 points for 30 year conforming mortgages. If you think gas and food are expensive now, you might want to reconsider. Using adjusted Dollars to compare today to then, your loaf of bread cost you $6 then compared to $3 tops now. Your gas cost you $4 then compared to $2.50 now.

The thing is it is perception that statistics like "largest job number loss in 18 years" sounds scary. But it is scary only if you don't understand that in the past 25 years the size of the employment job market has skyrocketed. In percentage points of actual loss it doesn't even compare. Compare today's 6% unemployment rate to the double digit rates of the Carter years. Then take it a step further and consider that most economists historically viewed a rate of 5% as being essentially the closest our economy could come to "FULL EMPLOYMENT". Think about that. We are historically just one percentage point away from full employment nirvana, yet you have elected officials stating that we are just a step away from a Depression?

You mean the Depression where we had 15% and over average unemployment? We are not even in the same ballpark right now. Do many people remember how happy we were with interest rates at 10% and 8% unemployment under Reagan?

It was recalled as a boom time for the entire economy. Remember the 1980's? The time when all levels of the economy miraculously improved? Well, it wasn't miraculous all we did was cut taxes. Yet, that level attained by that improvement doesn't even begin to approach today's numbers of Prime 3.25% and unemployment of 6.1%. Under Carter we had a prime of 21.5% and 11.3% unemployment.

Did we need a bailout? No we didn't. Did we loan some industries money? Yes- and made a profit for the taxpayer when they were paid off. Did we spend billions in infrastructure and pork programs? No- we solved the crisis by dropping the marginal tax rates to a more sane level. How did companies respond? They cut their staffs, retooled production, began investing in technology, and spun off dozens of inhouse entities to become independent corporations. Small business also got lean and mean, dumped staff and improved their products and services- not to mention improving productivity.

So really, if you believe their is an economic crisis, you have probably fallen into a media perception trap. You probably are a person who has made some bad economic choices that influence how you see the overall economy. You probably can't get a home or auto loan due to past credit issues. Your employment skill set is probably antiquated or specialized to contracting industries. You probably don't remember the Carter Administration, Ford's WIN program, or the Oil Embargoes on a personal level, resultantly leaving you without reference to evaluate current claims that we are one step away from a Depression. In short, your personal reality is that you represent the 10% of Americans who, for whatever reason, are simply not successful compared to everyone else.

Therefore you see reporting on how bad everything is- and identify with it personally because it is what you are experiencing. The reality is that real estate in isolated markets, California, Washington, New York, etc. were over valued and had minor corrections of 10% average which left less capable people upside down in short term mortgages. You had a federal policy of risky loans dropped into the mix, as well as a war, and a retraction in technology services all combining to create a situation where reasonable people became cautious. And by being cautious, people and companies pay less, look at budgets more closely, and keep liquid assets consolidated and available.

What this means to those who live beyond their means, and companies who operate with lose fiscal control is the economy that enables such activity has ceased. People living within their means are not effected right now and are even benefitting from lower costs towards purchases and credit.

Unfortunately we are all getting a nice $1,000,000,000,000.00 debt increase intended to insulate those among us who tend not to live with a personal budget & those companies who operated with lose fiscal controls.

If we are on the verge of a Depression, then what we experienced under Carter was a full blown Depression. And that would make the Depression of the 1930's totally unimaginable by anyone in terms of actual economic impacts.

McCain was right. The economy is sound and is operating normally. And the expectation that unless something was done before Obama took office, the Depression was going to hit by January has proven ultimately false. There isn't a crisis. There never was one. However, we have now sown the seed that will bare fruit during our children's lives. For ever dollar spent by the government, the economy gets back a 60 cent return. For every dollar the government borrows it costs the tax payer and addition 50 cents. So the real costs associated with the $700 billion of Bush and $800 billion of Obama are ultimately going to clock in at around $3 Trillion in true costs.

Our children should expect a real Depression in the next 30 years.

I'd pay off your credit cards and pay off your mortgage if I were you.

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McCain's Economic press release

Well McCain's press release is as clear as it can be.

He supports NAFTA, CAFTA, and free trade agreements. He supports cutting the draconian tax rate on corporations and investments. Dropping the estate tax rate to 15% vs Obama's proposed 55%. Allowing for the reality that most small businesses and farms at time of transfer currently run afoul of the Estate tax when the original owners die.

Things like proposing an alternative tax system which is more in line with the means and methods employed by the leading economies of the world. Encouraging R&D with a targeted credit available to any company that is researching new innovations and products. Making healthcare portable and available without considerations to pre-existing impairments. Removing the red tape that prevents private companies from building nuclear power plants. Removing the impediments to companies being able to actually drill for oil and minerals on federal leases they hold.Streamlining the current hodgepodge of laws, regulations and tax credits that have not allowed the alternative energy market to be fully developed.

And that is just the surface. In all cases McCain is stating that government inefficiency is preventing a free market from providing for the economic needs of the American consumer and the companies that could potentially provide the goods and services that would answer the requirements of an expanding economy.

To a very large degree, what McCain is advocating is drawn from presidents as diverse as Carter to GWB. Namely, a free market, and a role of federal government that is a steward of fairness in the market. Not a case as in Obama's plan where the federal government becomes the administrator of the economy.

McCain is calling for a free market solution. By its very nature, that would make him an advocate for capitalism.

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Obama's Economy- Socialist or ?

Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families:
Why is this tax being considered? It ammounts to taking the legal profits away from companies that had no expectation that they would be denied or even be compelled to pay a tax for making a wise business choice. Instead their profits will now be devoted to providing a $1000 a year public entitlement.

Provide $50 billion to Jumpstart the Economy and Prevent 1 Million Americans from Losing Their Jobs:
This would create a $1 billion fund for each state to essentially provide funds for government public works. Instead of promoting fiscal responsibility at the state level due to budget balancing, Obama instead intends to use the Federal government's ability to create debt funded payments to provide social programs which would otherwise not be funded or would be funded at the level each state's economy is capable of funding.

Provide Middle Class Americans Tax Relief

Under his plan 37 million people will cease to pay any income taxes. And additionally create a tax system where banking records and transaction records will be centralized to an extent where taxpayers will receive individualized pre filled out tax forms. If the taxpayer has formerly filled 1040 long forms with extensive itemized deductions and economic exchanges that include depreciation, small business sole proprietorships, or charitable deductions they will essentially red flag themselves for audits if they choose to fill out the tax forms with their own data. It is very interesting that the people most likely to file such returns are also more likely to be Republican. It also is interesting that Obama's plans for the tax code as pertains to individuals will most likely benefit low income Democrats. Manipulating the tax code to benefit primarily those who back you at the ballot is suspect.

Fight for Fair Trade:
Since when is fair trade with other nation states defined by placing the worker in the trading partner's own economy as most important? A trade agreement is about removing artificial barriers to free and open markets. Further, since when is a trade agreement based upon artificial restrictions on environment? Wise market choices would be those agreements which allow for another nation to realize that if it wants to sell goods to the USA consumer market, "green practices & sustainability" are the only way that they will be able to enjoy significant market penetration. The opposition to the Central American Free Trade Agreement is a strong case in point against the logic of what a trade agreement should be under their interpretation. CAFTA would indeed create a neutral tariff free economic zone with open markets. Their interpretation of what fair trade is would be more in line with a centralized planning based on social goals. Namely workers should be treated across all boarders as economically equal and protected and the resources consumed by them in the process of creating goods should be determined on grounds of ecology.

Amend the North American Free Trade Agreement:
One of the few highlights of the Clinton administration was NAFTA, and with few exceptions, its enactment has exceeded even the most pessimistic predictions on its impact to the three nations. In short it has benefitted all three nations, and in the case of the United States it has greatly increased income based upon goods, services, transport, and investments in almost all industries that come under NFTA. It is therefor puzzling as to why Obama plans to amend this treaty to prevent a supposed decline to our collective economic security. Hats off to Bill for getting this one right.
Improve Transition Assistance:
In this day and age, most human resource managers and people employed in the various state departments of labor freely advise people that two things are required of all workers in this day and age. First, all workers must realize that technology innovation will now occur at such a fast pace that almost all workers will be forced to transition between multiple jobs and skill sets in their productive lifetime. The second is that all workers should realize that continuing professional education and continuing trade skills education is a fact of life. A wise individual will realize that technology will more than likely impact their career over their lifetime and failing to keep current in terms of education applicable to their careers will make them less of an asset to any company. What they propose is a creation of a continuing education entitlement funded by and directed by the government.

End Tax Breaks for Companies that Send Jobs Overseas
This one is truly laughable in the face of the reality that we live in an increasingly globalized economy. Further, American companies that have international and multinational footprints simply cannot just employ American citizens. Consider things such as Apple, IBM, CISCO, GM, Exxon Mobile, GE, CNN, Coca Cola, Pepsi, or any other well known company that is based in the USA. Because of globalization and free trade, our companies are expanding and growing irrespective of boarders. Free Trade makes this possible, and the fact is that often the American workers find that the old jobs that get shipped away from the physical confines of the USA tend to be replaced with better jobs that require less physical labor and pay higher salaries to those who take on these new roles. To enact a trade barrier in the form of issuing federal contracts based upon the citizenship of the workers of a company will instantly put most American multinationals into the "Do Not Apply" column when it comes to attempting to bid on a contract.

Reward Companies that Support American Workers:
In a further affront to open and free trade, Obama wants to enact legislation that would subsidize a system where companies would be favored with tax breaks. All they have to do is use the tax to subsidize their employment of American citizens instead of basing their employment needs on the market conditions. All they need do is stay incorporated in America, pay a federally approved wage rate, provide a retirement package, provide healthcare, and subsidize the pay of military personnel.

There are just a few examples of what Obama proposes. And all of them are a direct form of Federalized administration of the economy to achieve social agendas.

Deploying broadband, Public-Private Business incubators, EFCA and its dropping of the secret ballot, denying a company's right to replace striking workers, low income mortgage credits beyond what is already provided to everyone, federalizing credit scoring, even fundamentally changing consumer credit are all examples of a socialist based economic plan.

There is no other way to define what he is proposing. It is indeed socialism.

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Chris Cox

Chris Cox, chairman of the Securities and Exchange Commission probably should be sacked. Allowing debt to be turned into securities and specifically how mortgage debt was turned into a security with floating cash returns is something that Cox should have and could have prevented.

As to McCain pointing out that Obama has stated publicly he will not draw back on the social spending programs he has promised- as well as differing from McCain in also calling for individual mortgages holders getting direct government pay-offs isn't a case of vehemence, its just reiterating what Obma was saying as recently as last night.

I do agree utterly that the Republicans are acting in a way FDR would have never have attempted. It is indeed a naked power grab.And I do wonder if McCain sees this and expects to have unprecedented power in terms of capital in his new administration. Maybe Obama recognizes it to be a power grab favoring the Republicans because he is now stating the solution being presented to Congress should be viewed only as a first stop-gap test, that will need further expansion and refinement with a new administration's oversight in January.

One thing mitigating McCain's motives would be if Cuomo was appointed SEC head. Cuomo is indeed a nightmare to Republican leadership, but he is also an ideal person for the job.

Conservatives in the Republican party are afraid of this tendency in McCain. He isn't as partisan as many Republicans want him to be. And often they mask this fact by claiming they hate his temper.

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Home Mortgage Crisis?

House equity is only being sucked away if they are trying to sell heir house, and once agreed to it being sold, sell it for a value less than the outstanding loan amount left on their mortgage. If you aren't selling the house you aren't losing any equity value.

95% of all loans are being paid. 3% are 90 days late. 2% are being foreclosed. In historic terms- its normal.

About the only people actually taking a equity hit, are house flippers who bought high on the expectation of selling high & people who incompetently took on more debt in purchasing a home than they could afford.

Case in point, when we went to shop a loan for our current house four years ago, the approval prelim came back and we were told that we could afford a $500,000 mortgage. We laughed our buts off when we heard that. We knew what our cash flow was, what our budget was, and what we could reasonably afford in a worse case scenario. We took a loan out for $160,000K plus closing costs out the yazoo.

After pouring approximately $40,000 into our house, we have scene its actual market value put it between $230-240K. Meaning in terms of equity on our home we probably have $60,000 in equity on the property right now. We have not opened a line of equity credit, nor do we plan on selling any time in the near future. So in a real sense, over the past four years we have poured 40K into a mortgage/property taxes & 40 K into home repairs/ improvements.

We could have dumped that 80K into things like investments or simply having fun and saving money by renting a house for far less. I don't think we are an exceptional circumstance either. We certainly aren't dealing with a cash flow problem even though it hasn't changed in four years. If anything our expenses have repeatedly turned out to be unexpected things like water heaters and walls.

I simply don't think a lot of people know what debt is. Or equity. Or loss, profit--- or even how the money pool functions at all. Those that don't are among the 5% of mortgage owners country wide who are now finding out that just because you qualify for a McMansion 100% financed- does not mean you should sign the closing papers on such a house.

As your quote indicated, and you even emphasized the "Money" part of it, most people do exactly what your quote says. They do not understand what equity is. My equity in my house is properly termed, only the amount of the mortgage I have paid off. All improvements made to the propert have been funded without any loans. IE we saved cash for each project, and then paid for them outright. In a very real sense those purchases are adding to the equity of the home- but only if the mortgage is paid off.

Many people- lots of them being idiotic, looked at market values and took out equity lines of credit based upon the potential sales value of their properties. They then used this creit line to purchase on credit improvements to their homes. The problem is that these improvements are credit purchases. They may improve the over-all salebility of the home, but for them to be considered equity, one would have to first pay off the equity line and second also manage to sell the house at a price level that covers both the original mortgage and also the cash purchase price of whatever improvements they purchased with the equity line.

If your credit goes south, or the market values fall, or the market becomes a buyers market, anyone who made equity line purchase improvements would have to be extremely lucky to break even or even net an equity profit on a final sale.

The true equity value of a house is only reached in one of two ways. Way one is you look at it as a long term investment and take a couple decades to pay off the mortgage without adding on equity lines or churning your loan. The other way is to opportunistically sell the house on terms that far outweigh the mortgage costs left on the house while also being able to purchase a replacement home for less than the original home you sell.

Most people instead look at their houses as virtual piggybanks. They assume that since the local market sales price has increased, their properrty must also be worth that much. So they assume that they can afford second mortgages or equity lines.

It is an idiotic theory, especially if it is your primary home.

Right now I have 40 K off my primary mortgage. Assuming I could sell the house for the original purchase price, I'd take out 40k in equity. But in order to make it a good sale, I'd have to be able to find a very simular house for 40K. Something which is entirely doubtful and next to impossible. The longer I hold this house and keep paying for it, the higher my take vs original mortgage sale price will become. First because inflation will negate some of the up front quoted price. Second because the closer to term the mortgage gets, the more advantageos the value of the mortgage becomes.

Eventually, once the house is paid for, which would incidentally be about the time my kid gets ready for college, I will have only a property tax as a liability against the property. If I need to purchase tuition for my kid, I will be able to access the equity in the house by taking out a new first mortgage. The difference however in valuation at that time will however be based on both market values & the results of all the improvements I have made. Only then will the equity value for example of installing a new kitchen from the studs up get included in the valuation.

Most people assume that since they can get an equity line, they should. They assume that their home improvements are instant equity in their home. It isn't the case.

A lot of people made that mistake, so 5% of the mortgages held in the USA are going belly up.

Its not true in every circumstance, but most of the people in mortgage trouble are there because they are/were idiots due to the simple fact that they understand equity as a real estate agent defines it vs. what an accountant undersands it to be. 

You shouldn't "trust" the system. You should understand the system. And if you don't understand the system, you should take steps to learn exactly what the costs and benefits are before you sign a contract. You should be smart enough to get a second opinion on the property's value from a non-affiliated real estate agent. You should shop your loan with several mortgage brokers. You should also engage a closing attorney who is an advocate for you during the closing process- and not one lined up due to a convenience factor tat benefits others.

Failure to take those steps is indeed idiotic. People in general take more time and effort to research consumer electronics purchases than they do when buying real estate. Do you assume that your home theater system, video display, computer, and service provider will all seamlessly integrate because they are part of the electronic entertainment industry? Do you just assume everything will work as represented without doing any research? Without consulting with salespeople? Without looking at multiple manufacturers? Without visiting multiple retailers?

To make such a purchase in that manner simply invites easily avoidable problems. There are indeed many people who bought HD-DVD systems without doing much homework, trusting the industry to work seamlessly. Had they done even a marginal effort at research on whether to buy a HD-DVD or Blueray based video-data disk playback system, they would have easily come to the conclusion that Blueray was the most likely winner in the industry standards race. Those who did aply effort have Blueray systems. Those who didn't and bought an HD-DVD system in the last year or so just got impacted by what amounts to a market collapse. HD-DVD was dropped.

In the same way, those who jumped on the bandwagon of buying homes in markets of ever increasing property values even though they did not understand they purchase are now finding themselves being responsible for continuing to pay off something they bought without regard to being informed consumers. So do these people deserve a Federal amnesty? Do the people who bought HD-DVD systems deserve a Federal amnesty?

There isn't much I am missing on this issue that needs to be addressed. The issue is consumers not doing their own due diligence, and are now paying the penalty. It is really only an issue right now because it has become a political issue. Two candidates are offering and forebarances to prevent any foreclosures for up to 6 years. One candidate is describing the situation correctly as being little more than a statistical blip in terms of historic foreclosure rates & advises that the market is already correcting itself.

Where was the demand for amnesty and forberances in the 1980's when people had 12% mortgage rates and 3% were being foreclosed?

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