Once upon a time, people who wanted to buy a home saved their money, shopped for a house, and then asked a bank to loan them money. If the bank viewed them as a worthy risk, it loaned them the money, the house was bought, a mortgage secured, and payments made. In that time, the mortgages were generally negotiated with a fixed rate of interest over a period not longer than 30 years.
Most people paid their mortgage payments faithfully and over time built equity in their home. But as home prices increased, more and more people were priced out of the home ownership dream in many areas. Here in our little bedroom community home demand soared right alongside prices.
In those olden days, there was a law on the books known as the Glass-Steagall Act, which forced a firewall between investment banking (i.e., stocks, bonds, IPO funding, etc) and commercial banking (your corner bank which probably was chewed up by Wells Fargo or Bank of America about 10 years ago). This law was intended to protect consumers from bank failure by keeping stock and equity investments out of the reach of the keepers of depositors’ money, and therefore prevent another run on the banks such as the one in 1929.
Glass-Steagall worked quite effectively until it was repealed during the Clinton administration (1999) as part of a larger initiative set forth in the Gramm-Leach-Bliley Act (Financial Services Modernization Act), which broadened the reach of banking institutions and allowed them to offer a smorgasbord of services to customers, including investment services, affiliations with securities firms, creation of bank “holding companies” which created the appearance of separation between their various ventures despite the umbrella protection it provided, allowed for less regulation of foreign investment, and repealed regulations governing bank behavior.
Simply put, Gramm-Leach-Bliley removed many consumer protections and opened the door for many consumer traps.
Let me stop at this point and point out that one of John McCain’s top advisors and campaign co-chairmen is Phil Gramm, co-author of this bill. What has former Senator Gramm been doing since he left the Senate? Well, after Paine Webber was acquired by UBS (a Swiss bank with a long history of secrecy), Phil Gramm went to work for them as a lobbyist.
2005 and 2006 proved to be boom times for UBS and others like them, as lobbying pressure led to the rollback of rules that had protected consumers from predatory lending practices. As the rules relaxed, the predatory lending practices became the way of the day.
Not content to sit idly by and watch investment institutions turn to predatory lending, these mortgages were then wrapped up in packages and sold as ‘investment funds’ to brokerage houses and individual investors.
Thanks to Phil Gramm and colleagues, that simple home purchase has turned into a national nightmare where there are no real ‘owners’ of that mortgage with which to deal. The money just keeps flowing from one hand to the next in a circular motion and with a vampire-like need to feed on the life-blood of the small borrower into the veins of the international moneymen.
This is the man that John McCain relies on for his economic advice, since by his own admission, he’s not up to speed on economics. The man that rejects lobbyists has one as the co-chair of his campaign, and not just any vampire, but the one who is the blood brother of the primary predator by virtue of incestuous and dark lobbying activities.
But this isn’t just about mortgages. Think about those credit card invitations, especially the ones extended to your college-age kid, the ones that have the introductory rate of zero but can possibly go up to as high as 30% in some cases. That’s all part of the game, too.
Subprime mortgages and predatory credit cards are the bread-and-butter of our banking-stock market-mutual-fund business. They’re building the economic backbone of our country on the backs of the hard-working low-wage earners and then claiming that we have to ‘let the market shake everything out’. Nice guys, huh?
Suggestions for Individual Solutions
All but the first suggestion come from my husband, the investment adviser and financial planner. I believe he agrees with the first one, but hasn’t endorsed it, so I will own that one.
- Don’t vote for McCain. Seriously, I mean this. You’ve already seen him toe the party line, and there are many interests aligning behind him to protect their financial investment in individuals’ ruin. Do not put another Bush in office, especially one as clueless as McCain.
- Don’t accept credit terms you can’t afford in the worst case scenario. Just don’t. Remember that the Bankruptcy Act completed the foundation of the pyramid. Lenders are permitted to prey on lower-to-middle income borrowers. The Feds will bail out institutions like Bear Stearns but you will have nothing similar to rely upon. You will have to pay that debt no matter what. Even if your kids get sick or you lose your job, because consumer debt may no longer be discharged in a bankruptcy.
- Try a ‘credit fast’. No credit, no matter what. Pay it off, and live on a cash basis. You’ll be amazed at how much simpler life can be. Remind yourself often that by doing so, you’re depriving the vampires of your blood. It works, I’ve been doing it for 10 years and don’t regret it for a moment.
- If you’re a subprime victim, help may be on the way. Try to refinance your home at a better, fixed interest rate. The one thing I do not think you can do is hope to have a reduction in the principal to account for the drop in your home’s market value. Actually, I don’t think you should. Property values swing wildly all the time, what goes down will go back up. If a borrower could make the payments before the interest rate ballooned, it’s reasonable to expect them to make payments on a higher principal balance with a lower, more reasonable, FIXED interest rate. Whether relief will come in that form, I don’t know. But it seems reasonable to allow for renegotiation of interest rates without writing down principal balances.
Pay attention, please, to all of the proposals on the table by the candidates with regard to this mortgage crisis. It’s also worth paying attention to the players in the campaigns, who I view as far greater threats than individual campaign contributors who may work for an interested party.
Phil Gramm is a power player for McCain. I’ve already told you about Phil Gramm, but here’s another tidbit: Phil Gramm was embroiled in the Enron controversy via his wife, who exempted Enron from Federal oversight while serving on the Commodity Futures Trading Commission and then became a director of Enron while he was busy delivering legislation for financiers and money guys.
I haven’t even gotten to the oil relationships yet, but I will in a different, later post. The bottom line is that we cannot allow John McCain to be elected on the strength of his war record. He must be evaluated on the basis of his entire record, and that includes the people he surrounds himself with and relies upon.
Here are some other posts to read. Please spend time and read them before voting in November. This election will pivot on whether voters understand the economy and the war, because both are inextricably tied together in a bow made of oil and money.
Bonus Link: Why is McCain ignoring veterans?
Creative Commons’ Licensed Photo: Vampire Kitty by Domain Barnyard
Creative Commons’ Licensed Photo: John McCain Seattle by soggydan
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