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View Full Version : THE MORTGAGE CRISIS: A "MUST READ" ARTICLE


Rick
10-26-2010, 12:20 PM
As you all know, I am an independent thinker and I do not follow anybody's "PARTY LINE". That is because party lines are like bad legislation which is riddled with earmarks. I always find it amazing how fanatics on the right and left disavow anybody who does not follow the party line to the max. For example: The most conservative Republican who decides to favor "free choice" in the abortion debate is caste out of the conservative movement as a "liberal", etc. This is why I think that the party system in the USA should be abolished and that American candidates should rely more on the issues and not the party line (enough said about that).

With the above in mind, I came across an interesting article which was published online on October 24, 2010 by liberal columnist and author Rober kuttner:

Two Speeches Obama Should Give -- and Probably Won't

The first dealt with Social Security, which he wants Obama to publically avow not to mess with it.

The second is about the Mortgage crisis and the failure of the Obama Administration to do anything about it. Funny how a crisis produces strange bedfellows: Here's exactly what Kuttner says, and I agree with him 100%:

Friends, I have had it with the big banks. When the whole banking system was about to collapse in 2008 and take the economy down with it, I reluctantly supported relief to the banks. The banks have now paid back nearly all the money under the so-called TARP program. They are profitable again.

I coupled that relief with a call for stringent reform of banking practices, so that no bank would ever again be "too big to fail." Congress, in passing the Dodd-Frank Act last July, provided most of what I requested, including the power to shut down and reorganize large financial institutions that pose systemic risks.

But now we learn that the banks that created the monster of sub-prime loans were not just taking advantage of borrowers with deceptive terms, and of innocent investors who bought bonds backed by sub-prime loans. The banks also put the whole system on automatic pilot, and hired people to sign false affidavits that the mortgages were properly documented.

A great many of the mortgages, and the bonds backed by the mortgages, turn out to have false documentation. In plain English, that means houses can't be sold, because it's not clear who owns them. And if a property has been foreclosed, the bank can't take it back.

This is a needless catastrophe for homeowners, for the banking system, and for pension funds or mutual funds that bought these bonds. The bonds, backed by dubious loans, were already worth less than their face value because of the low quality of the underlying mortgages. Now, many of them may be worth nothing.

All of this was the result of greed, pure and simple. Banks were making so much money, so fast, that they couldn't even slow down long enough to properly document the mortgage loans.

Their greed has undercut one of the most fundamental pillars of our economic system, ownership of private property -- the ability to know for certain when you own something, and to be confident that when you buy something as important as your house, that the person who is selling it actually owns it. The bankers created a doomsday machine.

The people who created this legal mess on top of an economic mess have been lobbying my administration to come up with some kind of quick fix, so that all of these improper mortgages will somehow be okay. And I have told them that there will be no quick fixes at the expense of the tens of millions of ordinary homeowners who have been the victims of these scams. The fact that they were perpetrated by some of the biggest banks in our country makes them all the more shameful.

So today, I am instructing Treasury Secretary Timothy Geithner, as authorized by the Dodd-Frank Act, to call an emergency meeting of the newly created Financial Stability Oversight Council that he chairs. I have asked him to declare that a systemic emergency exists, and to come back with a three-part program.

Part one will investigate just how many of the nation's mortgages and bonds backed by the mortgages are not legally valid. We will devise a way of turning these into proper loans, but only as part of a broader program of relief to homeowners.

Part two will provide a more effective system of refinancing mortgages than the present HAMP program, so that people who took out mortgage loans in good faith and then found themselves under water, can keep their homes. This is not a handout, this is justice. Ordinary people will get no more than bankers got -- and no less.

Part three will determine which banks are insolvent as a result of this latest banking mess. Those banks will be restructured, under the new authority of the Dodd-Frank Act, and will be returned to sound operation so that they can serve the credit needs of Americans. No taxpayer money will be required.

My friends, banks are here to serve us, not to take advantage of us. I will not let the short-sightedness of a few people on Wall Street take down the economy for the second time in three years.

Wait, you say this doesn't sound much like Barack Obama? No, it doesn't. His loss -- and probably ours.

Robert Kuttner is co-editor of The American Prospect and a Senior Fellow at Demos. His new book is A Presidency in Peril.