Wednesday, June 30, 2010


DEPRESSION U.S.A.

ALEX IS NOT THE PROBLEM, IT IS THE COLLAPSED ECONOMY - TIME TO BUCKLE DOWN

The American people owe the world 13 trillion dollars. If you believe capitalism works you are a moron. We as a people have what we have not because free enterprise works - but because we borrowed the world into bankruptcy and financial ruin. The American economy did not run on the salaries of the American people, it ran on credit. Corporate America could not produce the revenues needed to meet the gluttony of the American people.

I know the American people - turning a blind eye to reality is as American as apple pie (actually a British dish). American’s are no more loyal to a losing team than they are to their own country. Patriotism is an American myth - Being an American is nothing more than being a glutton - nothing else matters to the average American. Total U.S. consumer debt: $2.44 trillion, as of April 2010 (Source: Federal Reserve's G.19 report on consumer credit, June 2010)

In the last two weeks I have logged many an hour speaking with executives at banks and mortgage companies. What I learned was shocking most so because it was obvious. I should have seen it. There is no way out of the banking crisis except to allow the banks to make one last effort to make a profit before the complete and final collapse of the American economy.

The world economy cannot afford another collapse of the US economy. There will be war, racial upheaval, and major civil disobedience. We have already seen rioting all over the world when countries cut back on subsidies to the people.

SO WHAT IS THE PROBLEM?

Years ago I noted that the rebates in the car industry along with the low interest rates would prove devastating to the industry. Once people come to believe rebates and low interest rates are an entitlement they will rebel before they give them up.

Today, a disabled Texas veteran can get a mortgage at 4%. Regular Texas veterans are guaranteed a rate of 4.5%. A conventional loan ranges from 4.6% to about 4.8%. This can change hourly. Let’s begin with 4.6%, because the Texas veteran loans are subsidized by the state.

You are a bank, how much profit can you make loaning money at 4.6 %. The 4.6% is not pure profit. From that profit they incur the cost of managing the loan, and the costs associated with foreclosures. This is why banks want to invest in derivatives. I will never fault anyone for wanting to make a profit. Profit is a good thing.

Chase bank has pulled out of the Texas Veteran Land Board programs because they are managed by citi-mortgage for the TVLB. In fact virtually every major bank no longer does business with the one source Texas veterans can go to for cheap mortgages. - internal regulations at citi-mortgage has left banks like Chase holding mortgage notes at 4% without the subsidy from the TVLB.

The banks no longer follow VA, FHA, Freddie Mac or Fannie Mae mortgage guidelines. The banks are using stricter guidelines. I learned this when Wells Fargo refused me a VA loan and the chief lawyer for the VA had to write a letter and direct the banks to stop blaming the VA for why they are no longer giving out VA loans. The problem is industry wide. The banks are cowards and blaming the government. When asked to produce the guidelines the banks cut and run and will no longer return your phone calls.

This got me thinking - so I called in some contacts and was able to speak with several bank executives. This is why getting a loan has become a nightmare - I now have the story. When you have a credit score well into the 700's a loan should be simple - but it not - anything on your credit report will kill you. In 2001 I filed for bankruptcy. I voluntarily dismissed the bankruptcy. Everyone was paid 100% of what they were owed. I had to file to protect my assets from a bogus creditor. He went away real fast rather than face a BK judge. The fact everyone was paid, and my current debt is under $700.00, and based on the formulas I can afford a $200,000.00 home, means nothing. The banks are looking for any excuse they can find to deny you a mortgage.

SO WHY THE CREDIT CRUNCH - WHAT IS HAPPENING?

The US owes 13 trillion dollars to the world. The US controls interest rates. Do you believe the FED will raise interest rates in a way which causes the US debt to skyrocket? No, they will not. Interest rates will remain artificially low to limit its impact on the US 13 trillion dollar debt.

This means banks will never return to loan money for homes. Without mortgage money, the economy will never recover. Brownsville actually has a housing shortage. For a so so apartment, my friend had to reserve his apartment a month in advance. Unless the apartment complex is a complete dump, there is no room at the inn in Brownsville. There is no affordable rental homes in Brownsville. I am defining affordable as under $1,000 a month. People want to build homes and apartments, but there is no money.

Personally, I think the federal government should raise the interest rate on VA and FHA mortgages to 7%. This will encourage the banks to loan. This will never happen because the people will rebel.

The bottom line is the US , without causing the US national debt to go through the ceiling more so than it has already gone, cannot allow interest rates to go up. This will keep money tight, Without credit the American people do not spend. The low interest rates on mortgages have banks charging outrageous rates on their credit cards. People cannot afford 30% interest rates on their credit cards. My friends laugh at me because they will ask - how much more do you need to save before you can buy ......? In the last two years (actually have not bought anything in the last 6 months) I have paid cash for a new refrigerator, washer and dryer, 52 inch flat screen TV, computer, printer, an laptop. I did not pay one penny in interest on any of it. I either saved for the items or bought them on an interest free credit card at Sears. I maintain a $700.00 balance on my two credit cards so that I can maintain a good credit rating. My balance at Sears is 0.

BACK TO THE ISSUE

You cannot really understand the problem without the anecdotal stories - sorry.

Something has to happen which will cause interest rates to go up - and go up big time. This will destroy the world economy. The US cannot afford high interest rates. With 13 trillion in debt, a 1 point increase in what the US pays to borrow money could prove devastating. But with low interest rates banks cannot afford to loan money, which is needed to stimulate the economy.

There is only one solution - the government needs to set the minimum mortgage rate at 7% and the maximum credit card rate at 18%. This will never happen because the people will yell revolution if mortgage rates go up. The financial sector will yell financial ruin if they can only charge 18% on credit cards. BUT ALSO, the US cannot afford 7% mortgages because who will buy US debt at low interest rates if they can buy mortgage notes at 7%. It is an endless trap.

So the final result is, the US economy will linger and slowly collapse while bringing the world economy down with it.

I see a very bleak future. Our Founding Fathers understood a direct democracy does not work. The people cannot be trusted. Unfortunately President Obama and Congress care more about their reelection than they care about the American people.

I hope after the November election someone will announce against President Obama with a promise to do what needs to get done even if it means being a one term president. They need to take to the airwaves and tell the American people the hard truth. Capitalism has failed. It is time the national government start to manage the natural resources owned by the American people so that the profits can be used to pay down the debt. We need a guaranteed balanced budget, with all profits from government owned businesses being used to buy down the debt.

The only question is, is there someone with the courage to tell the truth, and will the American people listen to the truth.

3 comments:

Fred Drew said...

I believe you are correct in most of your analysis. The artificial low rates and credit given to those that were not worthy of the credit.
The government mandated that the banks, lenders etc. create loans with payments such as baloon payments assuming that the future would catch up the incomes as in the past with inflation or success.
This
The economy didn't produce inflation and then contracted, curtailing advancement for most.
The attempt by the government at social engineering by forcing the banks to make poor loans was a big precipitant of the crash.
My philosophy is that buyers and sellers should be left alone to succeed or not. Groups of each can form and improve their individual market strengths and still reach the right price. If one goes too low he doesn't benefit.
Capitalism did not fail social engineering failed and brought down the house.
Those that had been investing in hard valuables like gold have done well. When real estate reaches the right price it will recover as will the rest of the economy if the government were not to interfere, but become smaller and less costly.
It is the socialist experiment on the part of both the Republicans and Democrats.
Why not take a little idea from John Kennedy and lower taxes, it strangely enough, resulted in higher revenues for the government.
Higher taxes slow the rate of trade and thereby the economy.
It appears the the direct government payments have only aggravated things.

Fred Drew said...

That said.. I cannot accept that patriotism does not exist. I served with many I still think of as patriots and so many I talk with would serve again (whether or not fully supportive of the reasons for the conflict). Not necessarily the ones that advertise but those that trek to the Wall to visit your comrades only monument. I have five such friends that never came back and many of us that did communicate regularly and remember their contribution that resulted in our going home to have a shot at the dream that is America.

Fred Drew said...

More on patriotism at this holiday.
Why is it that when other countries invade they end up owning the country, when we go to war in another country, we rebuild it and go to great lengths to ensure they are self sufficient. Europeans went to war to own us in earlier days, they went to own the places they fought in. The Soviet Union attacked to control Poland, Hungary, Georgia, etc.
We don't yet own Iraq and our oil companies only got as few as 5 or so contracts.
Our military spends as much time if not more helping in the communities we found ourselves in.
Certainly there have been individual bad examples but many more good ones.
Our children in uniform are genuine heros it is the leadership that points the power in the wrong way.
To protect our young let us push for a requirement for a 100 percent vote of all the congresspersons to declare war or any military conflict.