Anatomy of a Sub-Prime Loan!

Our world banking crisis started someplace.  It is odd that no one seems to want to take credit.  Investment Banks, Pension Funds, Institutional Investors, Common Banks, Title Insurance Companies, Asset Managers and the Rating Agencies.  We suppose the concept here is to simply lump all those bad decisions together and in a circle point fingers in the opposite direction.  If we hear:  “There is enough blame to go around!” we might be nearing critical mass.  Oh, it was supposed to be the SEC that didn’t do its job.  It was uncapable enforcement officers of the SEC..that couldn’t get it right!  No, it was the lawmakers like Barney Frank that whistled while Rome burned!  No, it was Senator Dodd, that let the baby genie out of the bottle on the AIG Salary and Bonus scheme….even though they had taken $170 Billion dollars to place in various rat holes……around the world.

“The Market” is a big part of the delirium surrounding the fall of Stocks, Pensions, Mutual Funds and Public Employee Investment Funds.  They state arguments like: “We need to stabilize the market!”, “We need to bring back Real Estate and Commercial Pricing Stabilization….to the Market!”  The words do not help the fact that literally trillions of dollars are being printed each and every day – and each and every day that money goes into foreign banks or funds which still are capable of shorting the market enough….that small business people in the USA…..still can’t get a loan.  Still upside down enough that even the credit card companies are raising our rates to mean spirited and cruel limits….upwards of 35% or more…just in case you miss a payment date.

“The big TA-DA” caused by AIG and their bonus issue was predicated on the testimony of Ed Liddy…the current CEO.  Ed had to come out of retirement and get paid the traditional $1 dollar a year…..so he could cover the rest of the “Greedy” brokers and traders.  Ed used the term “Unwinding Investment Vehicles” a lot.  He stated that they were “complex” and required only the best and brightest to fix it.  How long does Ed want to “Unwind” these Assets?  He compared it to another situation that took four years!  Just so you know….the Congress wasn’t buying Ed’s mouthwash and promptly passed a 90% tax on all bonus issues for AIG and any other companies that had been taking the Federal TARP funds.

So, these are the results.  A world economic collapse!  We find ourselves begging all the countries of the world to arbitrarily flood their banks with their own depreciated printed cash – just so we won’t go belly up.  Maybe, as much as $8 Trillion dollars….just to start.  That famous Big 8 has changed to the Big 20!  Who even knows who can play in the big game now?

Back to “Unwinding”.  They have another term that means the same thing: “Deleveraging”.  When Bob & Mable bought their dream home in Costa Mesa for $475,000 dollars on 19th Street in early 2007…..Bob and Mable were retired on Social Security.  Their little house in Hemet had gone up in value and they finally after 50 years could bearly squeak by with some Pension retirement from the Hemet Fire Department and their Social Security.  They got a “Liar Loan” from Washington Mutual who promptly sold their loan to an internet Mortgage Company, who quickly sold it to a Foreign Hedge Fund, who sold it to an Investment Bank in London, who sold it Fannie Mae.

At any rate, Bob & Mable didn’t care as long as they could make their monthly house payment.  They even had banks asking them to borrow more from the $150,000 dollar principal they got out of their Hemet home.  Luckily we suppose, they didn’t bite on that rotten tomato.  What they failed to consider however was this word “Resets”.  Their 2.9% APR….would ramp up in five years to 14.5%  They never saw it coming.  They thought that they just fix up the Costa Mesa, sell it and buy maybe even a small condo that they could afford.  Oooops!  Fannie Mae was all set to “Foreclose” on Bob and Mable’s property when the Congress stepped in at the last minute.  Bob and Mable were quick to try to “Refinance” their home with better loan options.  Sadly, their $475,000 dollar home was now worth $285,000 and falling.  They even had four “Foreclosed” properties on their street.  No one was buying, selling, trading or fixing anything!

Bob’s Pension from the Hemet Fire Department had shrunken to about 40% of its original value….and his monthly payments were dwindling.  Bob heard about “Unwinding”, “Deleveraging”, “Sub-Prime Loans”, “Liar Loans”, “APR adjustables”, “Credit Default Swaps” and lots and lots of Banks that were no more….including his beloved Washington Mutal.  They all belonged to someone else….and his caring loan agent in Hemet was no more!  Bank of American sent him a nice note.  “We suggest, that you let us re-finance your property within the 90 days….or face foreclosure!”  The trick of course is that Bob and Mable now cannot qualify to refinance a tricycle….much less a $475,000 house.  The prognosis is not good.  It’s about a 1 in 3 chance that Bob and Mable are going to lose their home, their life savings they accured with their house in Hemet……and they could wind up on the streets.

What needs to be done?  Re-value all Sub-Prime Loans, Credit Default Swaps and other so-called “Toxic Assets”!  We need to write them down or write them off……six months ago!  We need to stop printing money to send to foreign banks to prop up these worthless entities.  We need to re-value all homes purchased from January of 2005 to January 2009!  We need to then adjust the monthly payments….and we need to roll back all rents, on Rental property to January of 2007.  Could we do it?  Sure, with some “will and wisdom”!  Will we do it?  “Probably not!”  There are way too many people that cannot see the forest for the trees and think that “nothing can them”!  Our thought is:  “They are very wrong!”  We need to re-establish a workable “Social Contract” for this country.  Additionally, we cannot prop up the entire world banking systems and survive for very long.

We have been taken down a peg….and the time has come to admit it!  It use to be said and bus going over a clift half full of lawyers was a waste of 50 seats.  We think that goes double for bankers wanting to bail out worthless Sub-Prime Loans and their other “so complex” Investment vehicles!