Posted by
shipwreck on Tuesday, September 16, 2008 12:00:00 AM
So Bear Stearns and Lehman Brothers go down the tubes and Merrill Lynch is sold. The cause is Banker's Greed, fueled by Greenspan's low interest rates, easy credit, adjustable rate mortgages, and high credit card rates. The invention of hedge funds and derivatives only served to camouflage the deteriorating financial stability of the firms that have controlled too much of the economy for too long. Numerous home mortages bundled into a derivative that only generates a "tranch" or sliver of all its components has become so complex that in one case of mortgage foreclosure, the judge refused to oust the home owner because the true mortgagee could no longer be determined. Each time a mortgage is sold, a commission is paid and the value shrinks a bit and after many sales of the same mortgage, the cumulative effect of the commissions strains the value. The high prices of homes were the direct result of easy credit and low or no down payments which caused the demand to run ahead of supply. Adjustable rate mortgages, another creation of Banker's Greed, were the straws that broke the camels' backs and their loads of upside-down mortgages to tumble down the mountain of greed into the abyss of default. How to fix it? 1. Start with a national usury law. The democrats and liberals won't have it because it would prevent the working poor to get "payday loans" at 400% APR. The benefits of the law would limit VISA and MASTERCARD from charging so much interest and penalties that they can cover the defaults of the spendthrifts and continue issuing cards to the poor credit risks 2. Lower the limits of unsecured credit card debt to, say, $3,000 per card. 3. No adjustable rate mortgages. 4. No sale of a mortgage by the original mortgagor to a third party. 5. Minimum down payments of at least 15% cash. 6. No more second mortgages. You may say, and with some justification, that this program will cripple sales of homes, the home construction industry, home furnishings and reduce the cities' revenue from real property taxes. But what are we going to do, the young couples yearning for the American dream of a home or condo are no match for the Banker's Greed just as minors are no match for the lure of tobacco ads. Once adjusted to this scheme, the home owner can be assured of keeping their homes in tough economic times.