Foreclosure Crisis: Here is the maths
Rizwan Ghani
March 24, 2008
Reportedly, Washington is on its way to dole out some 368 billion (168+200) tax dollars under economic incentive package. It is a flawed policy but let us focus on politics of saving banks at cost of mortgage foreclosure crisis.
Reportedly, some 2.8% of total mortgaged houses are open for sale. In simple words, some two million houses are on sale. The mortgage crisis could have been stabilized if financially troubled owners were given interest free loans directly. It would have cost less and provided immediate relief and in turn helped stabilize housing sector. However, instead of doing the same banks have been allowed more business by giving access to tax dollars while owners are forced to foreclosure, resorting to extreme steps including arson or even ending up in tent cities like the one outside LA.
The fact of the matter is housing industry in connivance with the banking sector have exploited legal loopholes to deceive their clients by offering deals including 2/28´s and other refinancing schemes that in all probability were rip offs in the first place. Despite all the indications and expert opinions, the banking sector and the housing sector giants are walking away with broad daylight robbery under the very nose of squabbling politicians and indifferent Washington.
It is time for forensic audit of mortgage industry and banking sector to bring an end misery of mortgage victims. These people should not be allowed to get away with white-collar crime in which instead of guns, paper has been used to deprive ordinary hard working American citizen of their lives savings.
Few believe that House Banking Committees will come to the aid of ordinary citizen in wake of their failure to stem unjustified credit card interest rates that in some cases have crossed 31%, which is not only unprecedented but reflect sheer exploitation of the consumer rights. Now it is turn of millions of house owners to lose their homes-elderly, handicapped and single parents.
Interestingly, banks are being asked to help million plus house owners facing foreclosure that too with tax money. In my opinion it is again a flawed policy because banks will charge interest for their services. For example if bank process 368 billion dollars for home closures it will earn 1.47 billion at the rate of 4 dollar interest (per hundred dollar). Washington by allowing interest free loans could have transferred this amount to individual home owners because in the first place it was their tax dollars that banks will use to give loans to troubled home owners. If Washington wants to help them with their tax dollars it should be interest free.
It puts in perspective reports of 2-dollar share of Bear Stearns now being revalued at ten. It can be argued that since it is tax dollars that are being used to pay for the Stearns´ share so why not pay more. The question is when Stearns continued working despite having 1100 million over draw against its name, why and what brought it down for having 200 million OD at this stage? In that respect why should a private set up be allowed to pocket the profit and ´socialize´ the loss? Shouldn´t´ failing fat cows be paying for their failures?
Reportedly, there are some 1300 plus sick financial institutions that are on the verge of collapse who need help on lines of Stearns unless Feds have other plans for them. In my opinion, it is time to clean the house and instead use the tax dollars to serve American public including foreclosure crisis. This is how free economy works-no socializing: that state intervention. If State wants to interfere it must first get the policy approved from the lawmakers and that should be applicable for all not selected blue-eyed institutions/sectors.
CEOs of such institutions should be denied hefty financial benefits and with help of forensic audits, they should inline with Enron fraud be forced to pay in kind for fudging statistics and brought to justice in accordance to law of the land.
The nation should be taken into confidence over the positive role of Sovereign funds mostly from Gulf. Reportedly, these fund owners are investing billions (to the tune of some 400 billion) to help restore economy of the country. The cases in point are Citi group, NASDAC etc.
There are however reports that the individual board members of American business etc are resisting these sovereign fund investors taking seats on the board table. They should be asked to explain the logic. It doesn´t make business sense. The board is ready to use the Sovereign fund money to save its business but feels that by occupying board chair the sovereign fund investors will threaten national security.
It is time to restore internationally accepted business practices than distorting successful American values over individual interests. It is only transparency and respect of international business laws that will attract foreign direct investment-nothing more nothing less.
The logic based on pure mathematics should be allowed to resolve the foreclosure crisis. The frauds in financial institutions should be settled in accordance to the law of the land not the banking committees´ recommendations peddling political motives than public interest. Those responsible should be brought to book. The large number of defaulting financial institutions should not be an excuse to let these white collar criminals off the hook and ´socialize´ the losses.
These criminals should be held accountable in line with LA foreclosure case where judge has ordered confiscation of property and fleet Ferraris and Bentleys of CEO of one of the housing firms. It is important to set a precedent for coming generations and cleanse the corrupt financial institutions. The question is can Washington do all this? And are the politicians including presidential race runners willing to compromise their financial stakes in public interest? In all probability the answer is a no. I wonder if US Justice department, Attorney General will follow the lead of one of the district attorney who has successfully brought mortgage crooks to book.
Finally, the math is clear; the question is all about the willingness to solve the crisis. Those who want all this under the carpet should now brace for the next brewing crisis where individuals are lending loans to other individuals, which has its own set of complications including victimization and exploitation of one American citizen the hand of another fellow citizen.
Reportedly, some 2.8% of total mortgaged houses are open for sale. In simple words, some two million houses are on sale. The mortgage crisis could have been stabilized if financially troubled owners were given interest free loans directly. It would have cost less and provided immediate relief and in turn helped stabilize housing sector. However, instead of doing the same banks have been allowed more business by giving access to tax dollars while owners are forced to foreclosure, resorting to extreme steps including arson or even ending up in tent cities like the one outside LA.
The fact of the matter is housing industry in connivance with the banking sector have exploited legal loopholes to deceive their clients by offering deals including 2/28´s and other refinancing schemes that in all probability were rip offs in the first place. Despite all the indications and expert opinions, the banking sector and the housing sector giants are walking away with broad daylight robbery under the very nose of squabbling politicians and indifferent Washington.
It is time for forensic audit of mortgage industry and banking sector to bring an end misery of mortgage victims. These people should not be allowed to get away with white-collar crime in which instead of guns, paper has been used to deprive ordinary hard working American citizen of their lives savings.
Few believe that House Banking Committees will come to the aid of ordinary citizen in wake of their failure to stem unjustified credit card interest rates that in some cases have crossed 31%, which is not only unprecedented but reflect sheer exploitation of the consumer rights. Now it is turn of millions of house owners to lose their homes-elderly, handicapped and single parents.
Interestingly, banks are being asked to help million plus house owners facing foreclosure that too with tax money. In my opinion it is again a flawed policy because banks will charge interest for their services. For example if bank process 368 billion dollars for home closures it will earn 1.47 billion at the rate of 4 dollar interest (per hundred dollar). Washington by allowing interest free loans could have transferred this amount to individual home owners because in the first place it was their tax dollars that banks will use to give loans to troubled home owners. If Washington wants to help them with their tax dollars it should be interest free.
It puts in perspective reports of 2-dollar share of Bear Stearns now being revalued at ten. It can be argued that since it is tax dollars that are being used to pay for the Stearns´ share so why not pay more. The question is when Stearns continued working despite having 1100 million over draw against its name, why and what brought it down for having 200 million OD at this stage? In that respect why should a private set up be allowed to pocket the profit and ´socialize´ the loss? Shouldn´t´ failing fat cows be paying for their failures?
Reportedly, there are some 1300 plus sick financial institutions that are on the verge of collapse who need help on lines of Stearns unless Feds have other plans for them. In my opinion, it is time to clean the house and instead use the tax dollars to serve American public including foreclosure crisis. This is how free economy works-no socializing: that state intervention. If State wants to interfere it must first get the policy approved from the lawmakers and that should be applicable for all not selected blue-eyed institutions/sectors.
CEOs of such institutions should be denied hefty financial benefits and with help of forensic audits, they should inline with Enron fraud be forced to pay in kind for fudging statistics and brought to justice in accordance to law of the land.
The nation should be taken into confidence over the positive role of Sovereign funds mostly from Gulf. Reportedly, these fund owners are investing billions (to the tune of some 400 billion) to help restore economy of the country. The cases in point are Citi group, NASDAC etc.
There are however reports that the individual board members of American business etc are resisting these sovereign fund investors taking seats on the board table. They should be asked to explain the logic. It doesn´t make business sense. The board is ready to use the Sovereign fund money to save its business but feels that by occupying board chair the sovereign fund investors will threaten national security.
It is time to restore internationally accepted business practices than distorting successful American values over individual interests. It is only transparency and respect of international business laws that will attract foreign direct investment-nothing more nothing less.
The logic based on pure mathematics should be allowed to resolve the foreclosure crisis. The frauds in financial institutions should be settled in accordance to the law of the land not the banking committees´ recommendations peddling political motives than public interest. Those responsible should be brought to book. The large number of defaulting financial institutions should not be an excuse to let these white collar criminals off the hook and ´socialize´ the losses.
These criminals should be held accountable in line with LA foreclosure case where judge has ordered confiscation of property and fleet Ferraris and Bentleys of CEO of one of the housing firms. It is important to set a precedent for coming generations and cleanse the corrupt financial institutions. The question is can Washington do all this? And are the politicians including presidential race runners willing to compromise their financial stakes in public interest? In all probability the answer is a no. I wonder if US Justice department, Attorney General will follow the lead of one of the district attorney who has successfully brought mortgage crooks to book.
Finally, the math is clear; the question is all about the willingness to solve the crisis. Those who want all this under the carpet should now brace for the next brewing crisis where individuals are lending loans to other individuals, which has its own set of complications including victimization and exploitation of one American citizen the hand of another fellow citizen.
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