Business Blogs December 2007


George Washington - GW - Free Masons

Blog by Ellie

The Masonic Program has shaped our reality in the power and symbolism of the All Mighty Dollar - the pyramid and the eye - always referencing back to the first insert ... out of the Middle East (ME) ... Isis ('I' - Eye) ... 12 around 1X3=36 or 9 ... President 'GW' Bush returning us to the Middle East after the symbolic fall of the economy on 9/11. We have come full circle.

By now you know everything that happens in one part of the (grid) economy, has a global effect as the cycles of time spiral into the eye and time seems to accelerate, but is actually slowing down and about to stand still, collapsing everything in its 'wake'. Crunch!

Many see the economy sliding in 2008 and continuing to decline in the years ahead ... till Zero. Deciding where to put your money, after following the news, hearing about government preparations for a 'collapse' - I guess the only place is 'under your mattress' - keeping it liquid and readily available.

Some clients tell me that they have laid out their finances through 2012 - relaxing, questing, involved with creative projects and healing.

The economy is always challenging and bitter sweet ... just ask the Gingerbread Man and Dennis.



Mortgage Freeze: Save the sugar coating for the holiday baking !

Dennis' Business Blogs


December 9, 2007

Let's not kid ourselves. Save the sugar coating for the holiday baking.

Bush's subprime mortgage rescue plan will exacerbate, not alleviate, the problems in the housing market. As the plan will sharply reduce the ability of new buyers to make purchases, it really amounts to a lot of 'fluff' and no real solution to the problem.

Although there are mountains of uncertainty as to how the plan will be structured and implemented, there is no question that as lenders factor in the added risk of having their contracts re-written or of being held liable for defaulting borrowers, lending standards for new loans will become increasingly severe (higher down payments, mortgage rates, and required Fico scores, lower loan to income ratios, and perhaps the death of adjustable rate loans altogether). The result will be additional deflating home prices, despite the fact that in the short term fewer homes will be sold in foreclosure than what might have been without the rescue plan.

Most homes temporarily saved from foreclosure will continue to depreciate as new buyers fail to qualify for loans. As a result, lenders will be on the hook for more losses than had the foreclosures taken place sooner. Of course, as these chickens will likely come home to roost after the next election, thatŐs a trade-off incumbent politicians will happily make.

What do you think those sub prime borrowers with frozen payments on loans that exceed the values of their homes will likely do. Likely, they will choose not to pay property taxes, condo or homeowners fees, or maintain the condition of their properties. Were these properties to be sold in foreclosure now, at least their new owners would have financial incentives to maintain the value of their investments. Upside-down sub prime borrowers will have no incentive to throw money down a black hole: why should they make additional payments on properties in which they have no equity and which they will likely lose to foreclosure anyway? When these homes do go into foreclosure, back taxes and other fees on dilapidated properties will inflict even greater losses on lenders.

Subprime borrowers with frozen resets will be unable to either borrow additional money against their homes or sell them. As rising credit card payments, higher food and energy bills, and stagnating wage growth or unemployment make even paying the frozen rates increasingly more difficult, this lack of flexibility will prove fatal. Also, the moral hazard inherent in offering help to only those who can demonstrate an inability to afford the reset rates, or restricting the bailout to borrowers with low credit scores, guarantees that borrowers will alter their circumstances to qualify for the aid. Therefore more loans will be frozen than are currently forecast, and the financial circumstances of the borrowers will be that much more impaired as they endeavor to pile on added debt or reduce their incomes to conform to the requirements of the bailout.

What is not being discussed is that few subprime borrowers have any skin in the game in the first place. Having put nothing down or having extracted equity in previous refinances, most subprime borrowers will lose nothing if their homes go into foreclosure. In some cases the teaser rates were so low that borrowers actually paid less than what they might otherwise have paid in rent. In fact, those who have already extracted equity have received huge windfalls from their homes and will leave their lenders holding the bag.

Also missing from the dialogue is the fact that those individuals and companies that sold these homes to subprime borrowers in the first place pocketed large sums of money they never would have received if these exotic loans were not available. Is anyone going to ask them to give some of that money back in order to compensate the lenders for their losses?

Then there is the other '800 pound gorilla' in this financial mess that no one is talking about. Delinquencies on auto loans are now at record highs, and with no home equity left to extract and a weakening economy, this problem can only get worse. What is next, a moratorium on car payments? Of course if the government can "require" private parties to rewrite contracts, what about the government's obligations to re-pay its debts? After all, the Federal government is the biggest subprime borrower of all and it has committed the American taxpayer to the mother of all adjustable rate mortgages. With the majority of our near 10 trillion dollar national debt financed with short-term paper, what happens when interest rates rise? Will the government extend the maturities of one-year treasury bills, tuning them into 10-year treasury bonds, forcing holders of government debt to accept below market returns for extended time periods? These are real risks that will not go unnoticed by a world already saturated with depreciating U.S. dollar denominated debt.

On the surface, this plan is being offered in an attempt to stem the tide of foreclosures that might otherwise cause further weakness in home prices. The reality of course is that current home prices are still too high, having been a function of the lax lending standards and rampant real estate speculation that got us into this mess in the first place. A return to prudence in lending also means a return to prudence in pricing. Everyone seems to agree that a return to traditional lending standards is a good idea, but no one seems willing to accept a return to rational prices as a consequence.

The governmentŐs attempt to orchestrate such an outcome is doomed to failure, as it is impossible to maintain bubble prices after the bubble has burst!

The final absurdity is the Government's attempt to portray their plan as voluntary. Of course the authorities point out that if their "suggestions" are not adopted by lenders, much more draconian legislation will surely follow.

During this holiday season, focus on the real value in your life - appreciate your family, friends, and loved ones and have a real sense of the things that no one else can sugar coat. Happy Holidays !

Ah - The Duality of it All !

Which of the following two articles is your reality?

Holiday outlook bleak as Americans see more economic troubles

Holiday Outlook



A Simplistic Overview of the Mortgage Crisis


Blog By George

December 7, 2007

Over the recent years, banks and other financial institutions were lending money for mortgages to home buyers at the low rates at the time, and didn't require a lot of documentation from the home buyer as to their income or other means of being able to verify that they could pay their mortgage. These mortgages were ARMS, or Adjustable Rate Mortgage, meaning that the interest rate is adjusted up or down, dependent up other financial metrics used. Also, many banks didn't require any down payment or a very low down payment. So, imagine being able to put nothing down on a home and have a very low monthly mortgage payment. It's very attractive in a market where homes seem to keep rising in value. The banks were also perhaps not being too upfront and totally honest with home buyers as to what they were getting into. All of this is being discussed and debated.

Interest rates have risen from years ago, so home owners who have adjustable mortgages are seeing their monthly payment go up, and go up a lot. Also, now, home values have not gone up, they have gone down, overall. As an example, a home owner could have a 2 year ARM, meaning that they have a low interest rate for 2 years, and then it can adjust thereafter. If that adjustment goes up significantly, it can be, say, $500, more a month to pay !!

So right now, it is estimated that there are millions of home owners that will not be able to pay their mortgage. One has to remember that so many people across the US were buying homes and that attributed to the rising real estate market as well. Now, with the mortgage resets (the interest rate and monthly mortgage payment changing and increasing), there are more and more home owners that cannot pay their mortgage. This means that the banks and other financial institutions foreclose on those homes. The home owners are basically kicked out and the bank repossesses the home, eventually to sell it. The number of foreclosures is monitored and it is going up and up.

From the bank and financial institutions perspective, they can repossess a house as an asset, but now that asset is worth less because the prices of homes have gone down. Say, the bank loaned at zero down payment $500,000 for a home that was worth $500,000 at the time. Now, say, in California as an example, it is now worth $400,000. That means that even if the bank can sell that house, it has lost $100,000.

The banks and institutions have millions of these mortgage loans, and millions of these foreclosures or home owners that cannot and are not paying their mortgage. So these banks are estimating and reporting these losses on their financial balance sheets in the billions of dollars. The banks can only estimate the loss because they don't know how to estimate the value of the home that they would sell after foreclosure since the real estate market is so locally variable. With losses of billions of dollars on the banks balance sheets, it can put into question the financial viability of some of these banks and financial institutions. In other words, and as an example, E*Trade financial institution has been speculated as going bankrupt. Bigger banks like Citibank have similar issues in maintaining their liquidity, meaning that even with these huge losses how do they pay their depositor's interest, etc. For Citibank, they had a major investor from the Middle East inject a lot of cash (again, in the billions of dollars) as a deposit that helped Citibank's situation.

With the bank's current situation of having losses, the banks have to reduce how much lending they do, and be stricter (less risky) in how they lend that money. Thus, this becomes a credit crunch, where credit is not as available as it once was. This can feed the real estate market situation by there being less buyers able to get mortgages. Less buyers can then mean even lower real estate prices, fueling the 'mortgage crisis.'

For the overall economy in the US, less and less people spend money now on their homes, from construction projects to buying appliances to just going to Home Depot less. This means the companies that report their earnings now are reporting lower earnings which affects the stock market on those companies. The question has always been how wide is the affect of this situation on the overall economy.

On the political front, you have banks that can go belly up in a disaster scenario, and you have the individual home owner being kicked out of his "American dream" home, during a presidential election year. That is why the Fed has been lowering rates and the President has been talking about not allowing these adjustable rate to readjust to higher rates.

The other thing to remember is that if foreclosures happen, it affects a whole community, and further depreciates the value of the homes in that community. So, it is perceived it is better to do something, and do something now.



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