Your loan application has been denied

By Jake T. Snake

The true tragedy in what I am about to write is that I doubt that even one of you will be shocked by it. We know that without guidance and diligent oversight, many people will revert to bald self interest. Bankers will do this sooner than others as it is their default setting and is in line with their training. (Ethics training in business schools Blahahahaha!) This facet of human behavior is what has brought us to a place where a bailout was required. As I noted in my previous post, those who made the mess could not be trusted to clean it up and so...(big sigh).

It appears that the bailout money given to the banks by Congress with no strings attached is not being used to loosen the credit crunch. (Feign surprise here)  Gretchen Morgensen in her Times article today writes that the banks in fact seem to be exacerbating the credit crunch by making fewer loans, adding fees and pulling in all the assets they can get their hands on and quickly.  Senator Chris Dodd was on NPR this week complaining about the banks using bailout money for executive bonuses, acquisition of other banks and payment of dividends. Senator Dodd concludes the interview by stating that no conditions were placed on the money, because coming to agreement on those terms with the 535 members of Congress would have been difficult. See, here's the thing...THAT'S YOUR FUCKING JOB! The really appalling part of this interview is his revelation that the 700 billion is just the tip of the iceberg. Once all the pieces of this bailout are included the pricetag will be in the ballpark of 5 Trillion. I hope our children can forgive us for mortgaging their future to these pillaging arrogant entitled assholes.

All this would be bad enough, but what if we gave 25 billion to a bank and it was still in danger of failing? This just may happen to Citigroup.A lot of people are holding their breath and waiting to see what happens. Now the question is do we authorize more bailout money for a bank that has already squandered their first installment? How can we do this and deny the automakers their own bailout?

After my last post, one of the commenters essentially said what option do we have (At which point I imagine a shoulder shrug and a vacuous look)? A fair question, I suppose, if one isn't very bright. You could do what the federal government does with the majority of its other contracts, which is to provide parameters for how the money can be spent and consequences for not doing so up to and including financial penalties and prison sentences. I work in the nonprofit sector and our organization receives money from both the federal and state government. Before my organization receives one cent from either entity, we have to submit a detailed budget and workplan that lays out exactly what we will do for the money and where it will be spent. If something happens along the way, say we don't fill a position as quickly as we thought we would and the money for that salary line is unspent, we have to turn in a budget modification to explain how the unspent funds will be used in line with the contract's purposes. Anywhere throughout this process the people who provide our oversight can make changes, veto parts of our plans, cut our funding if they feel it is not being used properly or in the case of medicaid ask for a return of money already given.

I do not believe that anyone in the Congress would have objected to a clause in the bailout bill that required the banks receiving free money from the taxpayers to lend a minimum of 50% of the money they received, since that was the purpose of giving them the money in the first place. There was that hard? Even hard core pro-business people would not feel that such a provision took away the bank's autonomy or ability to use the money as they felt their particular context demanded. The plan as it was implemented is nothing more than complete surrender to the arrogance and narcissism of a financial elite that believes itself untouchable.

Why are we not instead spending billions of dollars on work programs like we did during the great depression and really receiving something for our money? Instead we pour more money into the shell game that the finance world has become, where people make a living by being the middleman in endless transactions. If that is not parasitism could you please define it for me? It is time to stop moving the money up to the rich in the hopes that they will help us all, they haven't. I will tell you this, if you give money to working folks they do something fabulous for the economy with it, they spend it. I take heart that the government is giving the automakers a hard time about having a plan if they want money, perhaps we are starting to wake up to what has been happening. Let's watch, shall we?

     

Comments

[DrDick]

No. No. No. You just don't understand at all. Rules are for the little people.

[Susie from Philly]

Who's writing what? There's no byline on this post...

[Dan-in-PA]

I think what's been severely glossed over by most everyone (Save calculated Risk) is that, this initial disbursement to banks is ALSO being used to "buy back" as much of these "toxic exotic securities" and credit default swaps as possible from our "critical international trading partners" that bought them. Read that as China and Saudi Arabia. And it's being done under the radar for a couple of obvious (if you accept human behavior to mean "cover your ass first").

This was Paulson's reason for being so desperate. The Saudi's and Chinese were very quietly holding him (and us) for ransom and demanding repayment for selling them garbage which we KNEW was garbage.

It's a pretty safe assumption that those with power in and "in the spotlight" will almost always act to cover their own asses first when things go severely wrong.

[Dan-in-PA]

I want to throw this out there too, that I firmly believe that there's a WHOLE LOT of criminal culpability for this mess on Wall Street. From ratings agencies crafting blatantly false securities ratings to senior management who knew damn well they were selling fraudulently rated product. And that IF we were ever to have an honest inquiry into the causes of this disaster, we'd also, clearly, see that complicity stretches into federal agencies as well as the (privately owned) Federal Reserve bank.

But don't hold your breath, those in our government complicit in this multi trillion dollar ripoff will, likely, never ever see justice. Because congress, on both sides of the aisle, are deeply complicit in enabling what happened.

But the progressive blogosphere CAN and SHOULD continue incessantly, to point out how DEEPLY invested in keeping this under wraps Phil Gramm, specifically, is. HE, more than anyone else, belongs in jail. (I can wish, no?)

[Me]

Why are we not instead spending billions of dollars on work programs like we did during the great depression

Because it's not January 20th yet.

[James]

Explaining the TARP $700 Billion fallacy. There are about 51 million first mortgages in the United States right now — but only about 1.4 million of them are either referred for foreclosure or in foreclosure, according to the Mortgage Bankers Association chief economist Jay Brinkmann. In other words, fewer than 3 percent of American homes with mortgages are in foreclosure. See: http://www.npr.org/templates/story/story.php?storyId=94921465 (here are some of the latest but dated government figures from Oct. 2007, which are a little lower than the Brinkman numbers http://www.gao.gov/htext/d0878r.html)

The average first mortgage on a home is around $225,000.00 with payments of $1780.00 principal & interest for a period of 30 years. Here is the math:

If the US TARP program paid 100% face value for each one of the 1.4 million mortgages in foreclosure or about to go into foreclosure average $225,000.00 the cost would have been 1.4 million X $225,000.00 = $315,000,000,000 or $315 Billion dollars. In other words the US could have paid the lending industry 100% of the value of each of its bad loans, and stopped every foreclosure on every homeowner that was in foreclosure or about to be foreclosed for less than half of the $700 billion TARP program. The US could then have gone to each homeowner and renegotiated the debt to keep a large majority of the people in their homes.

This not only assumes the US would have had to pay 100% face value for each loan, but that each loan it purchased had no value, which is not true. Assuming that the average loss would have been 50%, or stated another way, that the US modified each loan with each homeowner so that it was affordable and the loan was still secured by equity in the property, say at an average loss of 50% (or the average value of each home in foreclosure was 1/2 of the mortgage debt), this means the US would have written down 50% of the $315 billion cost. So saving each homeowner in or facing foreclosure would have cost a little less than $160 Billion. Throw in another $40 billion to set up and administer the program similar to the depression era HOLC program and some unexpected costs and liabilities, the US could have saved almost everyone in foreclosure at a cost of around $200 Billion. What are Bush and Paulson doing with the other $500 Billion in the TARP program? Paying off the credit derivative losses I suspect. What were the Democrats thinking when they approved this nonsense TARP?

[James]

Forgot to mention if you include the interest the US would make on each loan and throw in a small equity kicker on resale or refinance as a condition of the gov't's modification program, the cost is even less than $200 billion.

[laym]

Shouldn't that stamp say "Fail" instead of "Denied"? This is the internets, after all.

[flory]

See, here's the thing...THAT'S YOUR FUCKING JOB!

Not really. Their job is actually to get re-elected. The rest of it is a hobby.

[Good Old Julius Streicher (Ret.)]

The really appalling part of this interview is [Dodd's] revelation that the 700 billion is just the tip of the iceberg. Once all the pieces of this bailout are included the pricetag will be in the ballpark of 5 Trillion.

Since this crisis began, the 'Masters Of The Universe' who created it have fought to hold on to their positions -- partly out of human nature; partly from arrogance. But the overarching theme is denial.

If all of the 'exotic' financial instruments are taken into consideration, the combined, leveraged debt world-wide may be in excess of fifty-plus dollars. When all this fun began over a year ago, some economists and 'entrepeneurs' understood exactly where it would lead -- but for the home-building, mortgage and investment banking and trading house CEOs, for Lil' Boots and his 'administration', denial was and still is the overarching theme.

the problem is as large as it is would mean they'd failed; that they were responsible for a fuck-up so huge that it would be almost unimaginable in dimensions of human misery -- not that they care much about that, but someone would have to be blamed, you see.

[Good Old Julius Streicher (Ret.)]

"...may be in excess of fifty-plus dollars."

That's fifty-plus trillion dollars. Because if it was fifty bucks, you know, I can probably cover that. No sweat.