Tags for this video have been changed from 'obama, mccain, palin, debate, foreclosure' to 'obama, mccain, palin, debate, foreclosure, republican national convention' - edited by MarineGunrock

Roubini has some very good ideas on how to do this right, and not be a scam:

HOME (Home Owners’ Mortgage Enterprise): A 10 Step Plan to Resolve the Financial Crisis
Nouriel Roubini | Sep 24, 2008

Even if the Treasury TARP plan is implemented fairly and efficiently the US will not avoid a severe U-shaped18-month recession and a severe financial and banking crisis: the recession train has already left the station in Q1 and the financial/banking crisis will be severe regardless of what the Treasury and the Fed do from now on. What a proper rescue plan can do is to avoid having the US experience a multi-year L-shaped recession and extreme financial crisis like the one that led to a decade long stagnation in Japan in the 1990s after the bursting of their real estate and equity bubbles.

I have also argued that, in order to resolve this financial crisis it is not enough to take the bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary and fundamental to reduce the debt overhang of millions of insolvent households via a significant debt reduction on their mortgages (an HOLC program like the one that was implement during the Great Depression); and also recapitalize undercapitalized banks with public capital in the form of preferred shares (as the RFC did with 4000 banks during the Great Depression). An RTC scheme without an HOLC and RFC component would not resolve two fundamental problems: millions of households are insolvent and unable to service their mortgages; the financial system is vastly undercapitalized and needs capital to avoid an ugly credit crunch and to foster new credit creation that is needed for future growth.

That is why I proposed the creation of a HOME (Home Owners’ Mortgage Enterprise) that would be a combination of an RTC, a HOLC and a RFC. Let me flesh out this proposal and its key elements and compare it to the Treasury TARP proposal that in its current form has many flaws.

There are 10 steps in this HOME proposal to resolve this most severe financial crisis. Here they are:

First, like in the Treasury TARP plan you need to buy illiquid/toxic assets and take them off the balance sheet of banks and financial institutions to reliquify them and allow new credit creation. The biggest problem here – as the debate between Bernanke and senators yesterday is one of the proper valuation and the proper price at which the government should buy these assets (the RTC did not have this problem as it was working out assets of failed S&Ls): if the government buys the asset at at price that is too high (too small of discount relative to face value) the fiscal cost will be huge and you massively subsidize reckless bankers and their shareholders. If you buy at a discount that is too high you minimize the fiscal cost in the short run but many banks could go bust and the eventual fiscal cost of bailing out the depositors of failed banks could be large. You can debate endlessly whether such assets should be bought at current market price or at prices closer to hold to maturity values (as Bernanke suggested). Given that these assets are impaired pricing the long run value of them is mission impossible. Thus, there is only one solution to this fundamental uncertainty: avoid the government overpaying by having the government having some of the positive benefits of an upside gain in case the banks’ values recover after the bailout. I.e. you need for the government to have some equity in the banks whose assets are purchased by the government. This leads to step 2 of the proposal.

Second, in exchange for the purchase of illiquid asset (at whatever price it is agreed) the government gets preferred shares in the financial institutions that senior to existing common and preferred shares and that are convertible into common shares to allow government to participate into any future upside.

Third, even if the government gets preferred shares as in step 2, the banks will need more capital if they are undercapitalized and they have not fully reserved/provisioned for the losses coming from writing down the asset being sold to the government. So you will need to inject further actual public capital in the form of preferred shares in the financial institutions ( this is what the RFC did during the Great Depression).

Fourth, given the risk to the government deriving from the public injection of capital in the financial system the existing shareholders of the banks need to take a first-tier loss to minimize the risks for the government share. How to do that? First, you need to suspend dividend payments on common share and possibly even existing preferred shared; you also need to force to partially match the public capital injection with new Tier 1 capital.

Fifth, public and private recapitalization of financial institutions unfairly benefits unsecured creditors (all creditors but insured depositors) of such institutions. So, you also need to convert some of this unsecured debt (the sub debt and other debt unsecured debt) into equity (a debt for equity swap). Such swap further reduce the leverage of the financial system (leading to a lower debt to equity ratio for financial institutions).

Sixth, after this crisis is resolved the banking and financial system may need lower capital than before this crisis so as to avoid new asset and credit bubbles; and if you recapitalize some banks that will be able to lend more (still with lower leverage ratios) you still need to let other insolvent banks and financial institutions to go bust and disappear. Only healthier institution should survive. So you need to a systematic triage between banks that are distressed, undercapitalized and illiquid but solvent once the private and public recapitalization occurs from those that are fundamentally insolvent and that need to be shut down. You need to destroy the bad apples to let the good ones or the sick but curable ones survive and thrive.

Seventh, as in the case of the RTC the assets of the banks that are bankrupt and are allowed to fail go to the HOME for workout (debt restructuring/reduction).

Eighth, you need an HOLC-like program for debt reduction of the household sector. Households in the US have too much debt (subprime, near prime, prime mortgages, home equity loans, credit cards, auto loans and student loans) while their assets (values of their homes and stocks) are plunging leading to a sharp fall in their net worth. And households are getting buried under this mountain of mounting debt and rising debt servicing burdens. Thus, a fraction of the household sector – as well as a fraction of the financial sector and a fraction of the corporate sector and of the local government sector – is insolvent and needs debt relief. When a country (say Russia, Ecuador or Argentina) has too much debt and is insolvent it defaults and gets debt reduction and is then able to resume fast growth; when a firm is distressed with excessive debt it goes into bankruptcy court and gets debt relief that allows it to resume investment, production and growth; when a household is financially distressed it also needs debt relief to be able to have more discretionary income to spend. So any unsustainable debt problem requires debt reduction. The lack of debt relief to the distressed households is the reason why this financial crisis is becoming more severe and the economic recession - with a sharp fall now in real consumption spending – now worsening. The fiscal actions taken so far (income relief to households via tax rebates) and bailouts of distressed financial institutions (Bear Stearns creditors’ bailout, Fannie and Freddie and AIG) do not resolve the fundamental debt problem for two reasons. First, you cannot grow yourself out of a debt problem: when debt to disposable income is too high increasing the denominator with tax rebates is ineffective and only temporary; i.e. you need to reduce the nominator (the debt). Second, rescuing distressed institutions without reducing the debt problem of the borrowers does not resolve the fundamental insolvency of the debtor that limits its ability to consume and spend and thus drags the economy into a more severe economic contraction. So of the five possible uses of fiscal policy – income relief to households (the 2008 tax rebate), rescue/bailout of financial institutions (Bears Stearns, Fannie and Freddie, AIG), purchase of assets of failed institutions (an RTC-like institution), recapitalization of undercapitalized financial institutions (an RFC-like institution), government purchase of distressed mortgages to provide debt relief to households (an HOLC-like institution) – the last option is the most important and effective to resolve this severe financial and economic crisis. During the Great Depression the Home Owners’ Loan Corporation was create to buy mortgages from bank at a discount price, reduce further the face value of such mortgages and refinance distressed homeowners into new mortgages with lower face value and lower fixed rate mortgage rates. This massive program allowed millions of households to avoid losing their homes and ending up in foreclosure. The HOLC bought mortgages for two year and managed such assets for 18 years at a relatively low fiscal cost (as the assets were bought at a discount and reducing the face value of the mortgages allowed home owners to avoid defaulting on the refinanced mortgages). A new HOLC will be the macro equivalent of creating a large “bad bank” where the bad assets of financial institutions are taken off their balance sheets and restructured/reduced.

Ninth, we need to avoid a situation where the recapitalization of the banks and the resolution of this financial crisis leads to another credit and asset bubble. Many things need to be done to avoid this risk but a rapid change of the Basel II capital adequacy ratios to reduce their the pro-cyclicality would be essential.

Tenth, start implementing rapidly a reform of the system of regulation and supervision of financial institutions in a world of financial globalization. With the collapse of most of the shadow banking system most of these shadow banks are now being folded in the traditional banks and will be regulated like banks. Indeed all institutions of large size and that are systemically important (commercial banks, investment banks, non-bank mortgage lenders, hedge funds, private equity funds, etc.) should be supervised and regulated in a similar way. To make the financial system more stable over time and avoid severe financial crises like the current one will require that both banks and former shadow banks be regulated and supervised better than they have been in the last decade. After all traditional banks have performed as poorly – and some more poorly – and have lost more money than shadow banks during this severe financial crisis. So both the poor regulation and supervision of banks (as regulators were asleep at the wheel while the laissez fair ideology and voodoo-cult of self-regulation and market discipline and internal risk management became dominant) and the lack of sensible regulation of shadow banks lies behind the current financial disaster. Thus, folding shadow banks back into the traditional banking system will make the overall financial system more stable only if the proper reform of the regulation and supervision of financial institutions in a world of financial globalization will be undertaken. This important matter is the subject of the chapter (titled “Financial Crises, Financial Stability, and Reform: Supervision and Regulation of the Financial System in a World of Financial Globalization”) that I have written for the recently published World Economic Forum’s Financial Development Report.

This chapter analyzes in detail the episodes of financial crisis in emerging market economies and advanced economy; discusses the causes and consequences of such crisis; measures the economic and fiscal costs of such crises; discusses the debate on whether monetary and credit policy should target asset prices and asset bubbles; studies the weaknesses of financial regulation and supervision in advanced economies financial systems that led to the recent crises; and finally considers eleven separate key issues in the reform of the regulation and supervision of financial institutions in a world of financial globalization that are necessary to prevent future crisis and make them less virulent. These eleven issues that are key in reforming financial regulation and supervision are: the distorted compensation system of bankers/traders and the related agency problems between financial institutions shareholders and their managers; the flaws of the originate and distribute securitization model; regulatory arbitrage and the instability of the shadow banking system given its reliance on short term liquid financing, high leverage and long term illiquid lending; the weaknesses of self-regulation and market discipline and the need of greater rules-based regulation; pro-cyclical capital requirements and other issues with the Basel II capital requirements; the distorted incentives of credit rating agencies; asset valuation and fair value accounting in a world where assets can be highly illiquid and hard to price; the lack of transparency in financial markets; the inadequate regulatory regime; the lack of international coordination of regulatory policies; and the issue of who will regulate the regulators, i.e. how to avoid the regulatory capture by the financial industry of the regulators and supervisors of financial institutions.

So now that the shadow banking system is being folded in the formal banking system it is high time to rethink how both banks and the former non-bank financial institutions should be properly regulated and supervised.

http://www.rgemonitor.com/roubini-monitor/253739/home_home_owners_mortgage_enterprise_a_10_step_plan_to_resolve_the_financial_crisis

^ Isn't CA one one the worst hit by foreclosures? This chart shows very high increases... though not as bad as Las Vegas/Phoenix - http://www.nytimes.com/interactive/2008/06/24/business/20080624_HOUSING_GRAPHIC.html

I feel this whole issue stems from poor lending practice. There is a minimum requirement to get approval for a loan. Banks are sometimes pressured to give out loans to people who cannot follow through with these loans, resulting in a foreclosure. It sucks, but you shouldn't take a loan unless you're able to keep to it.
BUT BLOCKING VOTING IS BS.

What are the "fundamentals" of the economy that McCain is referring to? I've seen him list some of the things quoted here (foreclosures, bank failures, etc) just before saying "but I think the fundamentals of the economy are strong".

Of course, saying the "fundamentals" are strong is a bit different from saying the "economy" is strong. Does anyone know what he is referring to? Some people seem to be turning this statement around to make McCain look like he's saying the economy is perfectly healthy (which I don't think he's saying), but at the same time I haven't found a video of him listing the parts that are strong.

Its kind of an asinine story. I mean, don't get me wrong, McCain and Palin are going to finish off the country over the next 8 years because a majority of the people in the country seem not to have had enough of Republican rule.... however... is this news story somehow insinuating that the Democrats wouldn't have partied it up if the conventions were swapped?

I mean, let's take it a step further... I'm pretty sure that the democrats spent millions upon millions of dollars for last weeks convention which amounted to nothing more than a party (there was not boost to Obama's polls as a result), meanwhile countless Americans are losing their homes to foreclosures, lack health-care, and are otherwise in dire-straights. Why not just use the insane amount of money spent to something actually constructive rather than what amounted to a three day infomercial?

To summarize, all politicians are guilty of spending the taxpayers money on unnecessary stuff. Democrats and Republicans alike. Let's not even get into the fact that politicians can vote themselves raises (and seem to all the time). If this country really does want reform, we have to tear down the two party system period.

More of the same ahead as the deconstruction of the economy picks up pace? The "Angry White Male" syndrome? I think it will probably become just "Angry Person" syndrome, as more folks face foreclosure, job loss, high gas prices, closed banks. Add a little Anger Power-ups provided by talk radio, Ann Coulter, etc., and burn, baby, burn. Or something like that.

I think this might be the first election in my lifetime where people actually pay attention to the issues.

There's a war going on that most people think is a mistake, and want us to end.

There's an economic crisis, with home foreclosures, $4/gal gas, and rising food prices, all made worse by 6+ years of stagnant wage growth.

There's a healthcare crisis -- we pay far and away more for healthcare per capita than any other country, yet our fundamental health statistics put us near the bottom of all industrialized nations (27th-29th overall).

There's an environmental crisis that fewer and fewer people can ignore.

There's an all out frustration with a government that tries to adjust facts to fit the policy, rather than the policy to fit the facts.

More than 80% of Americans think the country is on the wrong track, the highest percentage in the history of the poll.

Bottom line, people are mad as hell, and they're not gonna take it anymore.

>> ^shuac:
Unfortunately, because of it's length, it will likely not get much attention. The devil's in the details, people, and you can't get details in a 2 min video.


Yeah, it's really hard to find something that sums up this problem in short little sound bites.

This video is great because it doesn't just talk about home foreclosures and boring real estate industry shenanigans. It includes some root causes, such as the way we've treated money since 1980 plus the fact that the majority of America's manufacturing has been exported. And more! Good sift.

Unfortunately, because of it's length, it will likely not get much attention. The devil's in the details, people, and you can't get details in a 2 min video.

>> ^J-Rova:
He's questioning why the government gave up the ability to control the money supply. And if you want "checks and balances," The Federal Reserve consists of an entire board - not just Ben Bernanke.

Do you know who controls the Fed? The Fed is not a public institution. It's a cartel of private banks.

Despite the fact that the economy is beyond complex (every action has both good & bad consequences, which are incredibly far-reaching), the Fed knows what it's doing.

Recent events clearly show that the Fed either does NOT know what it's doing, or knows and is acting contrary to the United States' best interest by following a political agenda. The Fed's policy of low interest rates created the current housing bubble, and it's laughable to claim that this was good planning.

Since mid-2007, Bernanke has been hiking rates for people who were solvent, and lowering for the ones who were not. He's made the problems worse by breaking the people who actually could pay their bills, which in turn caused more trouble for the ones who were insolvent to begin with. We have a huge amount of foreclosures and still no one knows what the hell is going on with the big depository institutions.

Just recently Citibank had to borrow billions from Abu Dhabi at a 14% interest rate because they needed long term funds so desperately that borrowing from the Fed wasn't an option. Yesterday (Feb 14th) the Fed received a request of $268 BILLION dollars in TOMO/TAF (read: short-term) loans from depository institutions (source). That's more than 1/3 of the Fed's whole open market reserves, so only $66 billion were given out. Since the beginning of January, the big banks no longer have their own reserves. Their current reserves are composed of cash borrowed from the Fed.

All this shows that there are very big players in trouble out there, but we have no way of knowing who they are. Everything connected to the Fed is secretive, and not even members of Congress with the highest clearance can find out what's going on.

I could go on for hours about the amount of BULLSHIT that Bernanke puts forth, but I won't. The information is out there, so I suggest you use your "background in economics" to find it.

Any politician who tries to challenge the independence of the Federal Reserve loses whatever he was running for. It is believed that this is why Bush Sr. lost to Clinton, because he pressured the Fed for lower interest rates (which is a BIG NO-NO), as you can see in the following link.

This is ridiculous once you consider that Greenspan helped implement GWB's policy of artificially low interest rates and deficit spending which ultimately led to the mess we're in.

"The leftist solution to every problem is to raise taxes and make government bigger."

What fantasy world do you live in? I mean, I know it helps you sleep at night if you keep repeating this mantra to yourself. Look at the facts. GOP majorities have lead to the biggest increases of gov't spending and GDP declines.

If Clinton did raise taxes it was to create a budget surplus. Believe it or not, in the long run that saves money and in the long run results in less tax burden to citizens. What do you think happens if you cut taxes and then run a decade of deficit spending and trade deficits to the tune of trillions?

Hello, the interest, T-Bills, deflation of the USD.. all add up to really make your brilliant tax cut cost a lot more to everyone.

The GOP solution to everything is to increase the size of gov't and ALL gov't programs, DHS is large that anything this gov't has ever seen (outside of military). Iraq is in the 660 Billion range.

I'd rather a good economy and some "welfare" programs, then crappy economy, major foreclosures and coming unemployment, national debt three times large than anything ever imagined in history.

Cooooool! Happy to help you buy or sell when you come to Texas! Word to the wise home buyer....stay away from Adjustable Rate Mortgages...and get ready for the shitstorm of foreclosures soon to come......

The Gumby comeback is a great story that I read a while ago:

http://ezone.org/ez/e3/articles/mingo/gumby.html

Gumby started generating a lot of money. The problem was, Clokey wasn't getting much of it. He was paid a straight salary of $200 a week to write and produce the Gumby episodes. (That went up to $350 a week shortly before the Gumby Show was canceled in 1957.)

For eight years, he refused to license the Gumby image for merchandising. "I was a very idealistic person," he says, "and I didn't want to exploit children." That changed after Gumby's show left NBC and Clokey bought all rights back from the network. His Prema (Sanskrit for "universal love") Toy Corporation started manufacturing Gumby dolls and toys in 1964, the year that Gumby found new life in syndication and Clokey started getting rich.

Not long after, however, his personal life fell apart, and so did his fortune. He went through painful and expensive divorce proceedings with his wife of 18 years in 1966, about the time that TV stations began dropping Gumby in favor of newer and slicker kid shows. Clokey invested his last dollars in a new venture--a flexy-faced doll called Moody Rudy-- that bombed. His house went into foreclosure. In 1974, his daughter died in a car crash. Clokey went into heavy therapy and began "looking at various gurus" before adopting the teachings of Indian Swami Muktananda.

Clokey remarried in 1976 and three years later, he and his new wife Gloria traveled to Bangalore, India to visit a guru named Sathya Sai Baba who supposedly had amazingly magical powers. For some reason, Clokey brought a Gumby doll along to their audience with the guru. "I stood there with Gumby and he did this circular motion with his arms," Clokey says. "Out of nowhere he materialized this sacred ash. He plopped it right on top of Gumby. When we came home again, things started to happen." Gumby toy sales began to pick up, and then Eddie Murphy started doing a continuing Gumby skit on Saturday Night Live.. Suddenly, the phone started ringing and Gumby was hip again. Clokey went on a lecture tour and received an $8 million contract with Lorimar for a new Gumby series. He started work on Gumby--the Movie.

Y'know, if the folks that talk change really wanted it, instead of worring about the ozone layer, bludgeoning of baby seals, wobal glorming and politics, would return to the heartlands of the U.S., buy the cheap property that walmart has provided in foreclosures, etc., revitalize these areas with permaculture, family farms, dairies, etc., and refuse to shop this monster.....each one that had to close its doors as these small towns with new blood created a new livelihood and paradigm, would be another reason to dance on the ashes of the old world, which is the one we are in now, whose inhabitants sensibilities, are firmly planted up the collective ass.


Believe it, we have heard the whining before, of folks who apologetically say, that they are forced to shop here, that there is no-where else, blah blah blah blah blah....BULLSHIT! That pathetic excuse reeks, you create alternatives to bullshit, while there is still time......