Tuesday, June 23, 2009

President Obama's Proposed Changes To Banking Regulations

Here is a link to an excellent article by William Grieder about some of the glaring deficiencies in the proposals President Obama made last week to change the regulations for the banks. Supposedly to prevent future economic disasters such as the one we are now experiencing.

I would go even further than Mr. Grieder.

First, of course, there is no mention of restrictions on loans. Perhaps that is to be covered elsewhere. But for many decades the lending rules on residential real estate were as follows: the borrower can borrow 80% of the current fair market value of the home; the down-payment of 20% must be their own money, not loaned to them by someone else; and the borrower can borrow no more than three times gross income. That way, when the loan is made, the property has a value 20% greater than the amount of the loan. If there was a default, the lender takes the property and does not suffer a financial loss (to be paid by the taxpayers).

This would bring property values back down to where they need to be -- an affordable level. If the average American family has a gross income of $60,000, that means the maximum they can borrow is $180,000, and they can afford to buy a home for about $220,000 but they need a $40,000 down payment. Housing prices must come down to the point that they are reasonable and affordable. If they don't, if Obama does not put new restrictions on lenders, then we will just see more and more waves of foreclosures, and further radical and disruptive collapses in the housing market, in years to come.

The federal treasury, the taxpayer's money held and managed by the federal government, should not be turned over to private individuals for them to use to control our country, turn it into a dictatorship-of-the-banks. Which is what we have now. They take our money and use it to corrupt our government.

Here's how it works. Our government is currently loaning money to the Banks and to Wall Street (jointly the Financial Criminals) for .25% interest per year -- 1/4 of 1% interest per year is all they pay. The Financial Criminals take that money, turn around and loan it to Americans for between 8% to 25% per year. What a racket.

Here's the question: why should the Financial Criminals be allowed to sit in that privileged, cushy, lucrative position and take all the money paid by American working people for a loan? Put differently, why do the Financial Criminals get to borrow money from the government at .25%, but the rest of us don't?

It's not right. It's not good. It has the effect of transferring wealth from your average working person to the parasitic class of usually white men who constitute the Financial Criminals. Why would we want to profit and benefit them so much? Why do we punish your average American working person by depriving them of the opportunity to borrow money from the federal government at .25% per year? That's a much better deal than I got on my car loan. I'm a citizen. Why does some scummy corporate Wall Street entity get to borrow at .25%, but I've got to pay 8%?

There is no benefit to society to supporting a system which has the effect of transferring so much money from your average working American into the hands of a few, wealthy, generally dishonest and criminal white men with big offices on Wall Street. Just think of the amount of debt most working people have -- credit card, department stores, car, home -- then ask why the average person should be required to send so much money every month to a few privileged white men on Wall Street so they can become richer than the rest of us can imagine. If people could just pay off their loans at .25% directly to the federal government, they'd be out of debt in a few years.

When President Obama announced his financial "reforms" last week, his prefaced his statement by saying that the current problems we have are the result of all of our wrongdoing. We did this to ourselves. The American people are at fault. If you're out of work, broke, in debt, in foreclosure, homeless, hungry, it's your own fault for being so greedy.

According to the President, the average working person, who maybe buys a new pair of running shoes at some cheap import store once a year, and other than that never buys anything for themself, who can barely afford food for their families, who cannot afford dental so they just have the bad teeth pulled and get more toothless as the years pass, who cannot afford medical care so they die young, the average person is to blame. Not the Financial Criminals, not the politicians who have accepted hundreds of millions of dollars in bribes from Wall Street and the Banks, not the Clinton administration that stripped away regulations to allow Wall Street to plunder and loot our country. No. The fault lies with Joe the Unemployed Factory Worker. Come on Obama. I expect that kind of garbage from a Republican.

If people had a living wage, they wouldn't have to use credit cards because they could afford to live without borrowing every month. So how about passing the EFCA law, Democrats? No unions, no living wage, no jobs, no job security. That's not the fault of the working people -- it's the fault of the Corporations, the CEOs, and the corrupt politicians who have passed laws to let these Corporations take jobs out of this country and to fire people who try to organize unions.

If people didn't have to pay 20-25% interest on their credit cards, they would be paid off already. The crushing debt imposed on Americans is the fault not of working people, but of the Credit Card industry and the corrupt politicians that refuse to make credit card companies obey the usury law, which restricts interest to about 10% max. That's not the fault of working people -- it's the fault of the Financial Criminals and the corrupt politicians.

The foreclosures are also not the fault of working people. Here's what happened: Greenspan slashed interest rates to boost borrowing and spending to try to cover up the disastrous tech collapse in about 2000. He held the interest rates down for so long that it had an artificial and deceptive effect on the housing market. Let's say a house that sold for $250,000 in 1995 with interest at around 6%: monthly payment would have been around $1400, affordable for a two full-time working parent home. By deregulating the Banks and allowing them to make funny loans, and by slashing interest rates, people could borrow a lot more money but pay relatively little per month. All people want to know is how much will it cost me per month. So the same house increased in price to $750,000. Interest at 2%, monthly payments would still be around $1400.

Of course most people could not afford a $750,000 loan in reality, and eventually the loan "adjusts" upwards, people default, foreclosures are the result. As well as the property plunging back down to its "real" value. If we've had a 30% drop to date, hold on, it's still got to go further down before housing is affordable given average wages (and unemployment) in this country. So actually, that too was the result of political actions by Greenspan, inaction by Congress, and greed by the Lenders and the real estate developers. Not the fault of your average working American who, after all, needs shelter. If the price of housing goes up 3 fold, you can't blame people for paying what they have to pay to have a roof over their heads.

Here's what should happen. Banks should be considered something like a public utility. Like the company that delivers water to our communities. The water is owned by the people. The company that delivers it is entitled to a reasonable payment to cover their costs (and maybe a little profit). But they are not allowed to charge as much as they want, to deny people something as basic as water. The charge is (or should be) regulated by the government, since the people own the water to begin.

Banks should be treated the same way. Any lender should be. They can borrow money from the federal government but lending should be restricted, as well as "fees" and interest, to allow the bank to pay their costs and make a modest profit. The federal government should charge the banks more than .25% interest, but the interest the banks can charge to the public should be radically lowered.

President Obama also suggests that any bank that makes a loan then sells it should be required to keep a 5% interest in that loan. That's nonsense. As Mr. Grieder points out, the Bank will just charge the borrower another fee and recoup that 5% up-front.

Here's what should happen instead. Bank makes a loan. They can sell a small percentage of the loans they make to another regulated bank. But the loans cannot be sliced up and sold off in pieces. Any lender who buys the loan must keep 100% of the loan. And all banks must keep a large percentage of the loans they originate. There is no benefit to the people of this country to allowing their mortgages to be securitized -- bundled with thousands of other mortgages, sliced into small percentages, sold around the world. It is in fact simply a highly speculative gambling scheme that encourages fraud, deceit, unsavory practices. There is no benefit in allowing it to continue, and it should be halted.

So, my advice is this: back to the drawing board.

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