All >
News
Local Author Writes Letter to Treas. Sec. Geithner
By: Leonard C. Tekaat
Topics: housing foreclosure crisis,
Politics,
News,
economy,
Real Estate
Posted by happyashell
Thu Sep 17, 2009 16:01:51 PDT
Viewed 124
times
0
responses
0
comments
After a year of seeing and hearing about the misery and disruption to families, the Great Recession has caused to the people of this great country, Leonard C. Tekaat, a local author, decided to write a letter to US Treasury Secretary Mr. Tim Geithner.
To Secretary Geithner:
US Treasury
According to Assistant Secretary for Housing – FHC David H. Stevens the US Treasury is the lead agency on Making Homes Affordable program.
To make housing affordable and lower the deficit and stabilize housing prices, we need to develop a plan to improve our economy and put a stop to its destruction. We need to change the terms of our mortgages so Fannie Mae and Freddie Mac and other government agencies start funding mortgages with the terms that are outlined in my article.
The currant government deficit spending policies (Keynesian Economics) will lead to another inflation economic cycle. We also know that the currant policies used by the Federal Reserve to control inflation and inflation psychology have always created a recession or price increases, which leads to uncontrollable bubbles and then an economic crisis when they burst. A balanced approach is a better policy.
I am writing this letter today because I feel that you have a good understanding of the primary problem or flaw our economy is experiencing. Enclosed you will find one of many articles that I have written explaining what I believe may be a solution to our economy’s woes. The other articles (The Zero Inflation Taxation Policy, Is President Obama Making A Mistake? Stimulate The Economy Without A Huge Deficit, to name a few.) are at my web site www.economysflaw.wordpress.com/. If you would like to read the Alternative Economic Stimulus Plan that I have written click on the key word John Maynard Keynes at the above web site.
Article
Economic Crisis Is Solvable
Home prices are decreasing all over the country. President Obama Make Homes Affordable, foreclosure plan is destine to fail. It does not take into account that most homes in CA .NV. AZ, FL. has decreased in price by 40% or more. The rest of the country’s housing has decreased in price an average of 30%. His plan only allows for homes to be 25% underwater. The real estate market and the economy in general will not recover fully until the consumer’s financial condition is improved and all home mortgages that are underwater are modified so these homes and their owners can be included into the economy. The homes that are underwater cannot be sold or brought until they go through a short sale; foreclosure or the banks and servicing companies forgive, in some manner, the excess portion, of the loan.
The economy needs the real estate market because our homes are the backbone of our money supply, just like gold was many years ago. The reality of the modern world is that we no longer barter to exchange our goods and services. We use paper money or credit. They are both based on promises. If it is credit that you use as a means of exchange, the collateral must maintain its value over a long period of time, similar to gold. Our homes have served this purpose for many years, until greedy people and government agencies changed policies to create more credit money. Housing collateral is how we provide credit to consumers and small business. If the housing has no equity the banks will not or cannot make the loan.
On our Federal Reserve notes read IN GOD WE TRUST it should read IN THE FED WE TRUST. When the government with its misguided policies and the Fed with its interest rate policies cause the economy to be guided in the wrong direction, they are responsible. If you divert a stream and it does damage to people, you are responsible for paying for the damages. It is not the responsible homeowner's fault if their mortgage is underwater. A lot of people put 20% or more down and they are in financial trouble today because of the government and the Fed. It is estimated that by the end of 2010 ninety present of the homes in California will be underwater with their mortgages. This problem must be corrected quickly or we will have a major problem in our economy.
When the Republicans want to increase people’s disposable income, they want to lower taxes and reduce regulation. When the Democrats want to increase people's disposable income they want to deficit spend, create jobs, create more government programs and increase regulation. Both of these policies reduce government revenues and increase the national debt and the government's deficit, in the beginning of the recovery process. Lowering interest rates does not cost anything and increases more people's disposable income, by a greater amount, much quicker. This policy puts people back to work faster before the recession gets out of control and changes to a depression. The government's liabilities are decreased. We do not have to increase taxes to pay down the national debt or to decrease the deficit. With the correct policies enacted the chance of another housing bubble occurring is practically nil. Read Alternative Economic Stimulus Plan
I do not want to lower the interest rate you collect on your savings or other money investments.
On 2-24-09 the Fed Chairman Bernanke, appeared before the Senate Banking Committee. Senator Bob Corker stated during the meeting, “He had not yet heard a definite way out of the economic crisis. That it seems to me that we are continuing to do the same thing as we have been doing. That is, giving large amounts of money to the banks, to capitalize them and nothing happens that benefits the economy.” I agree!
The Fed is currently acting as a bank, regarding commercial paper. In his question and answer session the Chairman stated that, "Because the banks were not confident enough to loan businesses money, the Fed, by paying the banks .25% interest on their deposits, the Fed was borrowing the money from the banks and lending to it to the large corporations. I believe that the solution to the economic crisis is that the same policy should be applied to the housing problem. Banks and financial institutions are not confident enough to loan homeowner’s money to refinance their homes or for new mortgages.
If an adjustable rate mortgage was created with a starting interest rate that is low enough (3%) to jolt the economy back to life, the toxic securities (non-performing mortgages) will become valuable again, when the new refinanced mortgages become performing assets. The interest rate on these new mortgages should increase one-quarter percent per year and cap out at the currant market rate of 5%. We can cap out the mortgages at 5% because we will no longer be relying on the Fed to be the only government agency providing the means of controlling inflation and inflation psychology. (Read Zero Inflation Taxation Policy) To decrease defaults on mortgages, the borrower would have to qualify at the 5% interest rate to obtain the loan. These new mortgages should not be tied to any index. People do not trust indexed mortgages because of the uncertainty of the future. This is why they prefer the fixed rate mortgage. Currently we need lower rates to stimulate the economy. The banks will make huge amounts of money rewriting the mortgages and servicing them. Thereby becoming profitable and help capitalize them. We are currently trying to capitalize the banks by infusing the money directly into them. This policy is wrong because the collateral is losing value. This situation means the banks will need more and more capital to remain viable. The value of the collateral must be stabilized first, for the banks and investors to be confident enough to lend money against it.
What will this stimulus plan do for the economy? When the homeowner refinances their home from a 6% mortgage interest rate to a 3% interest rate their monthly interest payment will decrease by 50%. A $1500.00 monthly mortgage interest payment will decrease to $750.00. That will be like the person receiving a $750.00 stimulus check each month for the first year and thereafter a little less each year for the next seven years not just for a few months like the other plans. Multiply this by millions of people and you will have a stimulus plan that puts the purchasing power were it should be, with the people. Loaning more money to banks does not create demand in the economy, people do.
I want you to ask yourself three questions?
1. What is the first thing the Fed does to stimulate the economy? Answer: Lower interest rates, this permits people and business to refinance their debt at a lower rate of interest, which in turn lowers their monthly payments, freeing up monthly income, which increases their disposable income. With more disposable income, people have money to spend on other things, other than interest payments.
2. Why did it not work this time? Answer: Collateral prices were going down. Banks or investors cannot refinance people's loans until the price of the collateral stabilizes. When the banks and financial institutions did not, would not or could not follow the Fed's lead, of lowering interest rates, it made deflation and unemployment worse.
3. How do we solve this problem? Answer: The banks cannot lower their interest rates low enough because of the risk factor of the collateral's price going down. They have to make a profit and pay a high enough interest rate to keep their depositors satisfied. The US Treasury, which is a not for profit government agency, can borrow the money on the open market or from the Fed, just like the banks do, and fund the refinanced or new mortgages, at near cost, until the collateral's price stops decreasing and investors start investing in the new mortgage securities. The Treasury would receive the cash flow to fund more mortgages. When the economy is up and running again, the Treasury would sell the mortgages to investors. The banks and other financial institutions would arrange these new loans and mortgages or modification agreements. This stimulus plan would not cost the taxpayer a dime.
It has always been the 90% of the population who spends their money and pays their bills that brings the economy out of the recession. When their disposable income increases and they have the money to spend on household goods and services, big-ticket items, autos and trucks ECT. Improving the confidence and financial condition of the 90% will help the 10% unemployed more than any government program.
This plan should be the second stimulus. I would not fund what is left of the first stimulus and modify it to lower the deficit, which would keep interest rates from rising. The reduction in the deficit would calm the world's fears that we will have inflation in the future and that the dollar will be devalued.
My Plan does not rely on a trillion dollar government deficit. In fact the Alternative Stimulus Plan will not cost the American people anything over time. The Alternative Stimulus Plan also includes a policy that will help those people that owe more on their mortgages than what the house will sell for.
The news has been covering the economic problems. How about a solution?
I present one idea in my ALTERNATIVE ECONOMIC RECOVERY PLAN. You can read it at www.economysflaw.wordpress.com/
Leonard C. Tekaat is a retired economic Analyst, Economic Scholar, Financier, Investor, businessman, author, and a former Candidate for California Congress. He has experience in the financial world of over 40 years.
I am the author of INFLATION THE ECONOMY KILLER (Amazon.com). High inflation and deflation are both economic crisis, which are created when the economy becomes unbalanced. The policies to correct them are opposite of each other. Our concern now is the deflation that is occurring in the real estate market, mainly the housing sector of the economy. The housing sector is so important because it is how we provide credit to consumers and small business. The equity in housing is the collateral for the loan. It is the consumer and household formation that creates 75 to 80% of the economic activity in our economy. I know that some economist say the economy has improved in the last year but it is very possible that we will have a double dip recovery. I believe that if the Alternative Economic Stimulus Plan is put into action we will end the misery much sooner.
I am very interested in hearing your views on my proposal. I hope to hear from you very soon on this important matter. My Ph# is 661-619-4858 Fax 661-588-7954 E-mail www.economysflaw@yahoo.com 11620 Traviso Ave Bakersfield Ca. 93312
Copyright Sept 17, 2009
By Leonard C. Tekaat
Sincerely
Leonard C. Tekaat
P S This is a related article by AP News writers
Gov't helps keep loans cheap -- if you can get one
Gov't aid makes loans for homes and cars cheap. Just 1 problem: banks not so eager to lend
- By Stevenson Jacobs, AP Business Writer
- On Thursday September 17, 2009, 5:08 pm EDT
NEW YORK (AP) -- It's a good time to borrow money for a home, car or small business.
A year after a global freeze in the credit markets prompted massive government intervention to prevent the financial system from collapsing, interest rates remain at historic lows. But banks are demanding more collateral, bigger down payments and detailed financial histories from borrowers.
And that's for people with good credit. Everyone else need not apply.
The stingy lending is likely to last.
"Banks are going to be in a defensive posture for several years. Most borrowers can't meet their criteria," says Christopher Whalen, managing director at research firm Institutional Risk Analytics.
No segment of borrowers has been spared:
-- Nearly seven of 10 mortgage applications were approved and financed during the housing boom five years ago. At the end of 2008, the number was down to five.
-- Revolving credit, which is primarily made up of credit card debt, declined by $6.1 billion, or 8 percent on an annualized basis, in July. That's a sign consumers are having difficulty obtaining credit and are cutting back on spending.
To be sure, it is cheaper for businesses and consumers to take out a loan today than it was at the height of the crisis last fall.
The average 30-year mortgage rate stands at 5.04 percent, after falling to a record low of 4.78 percent in April. The overnight rate that banks charge each other to borrow money -- a key indicator of the credit markets' overall health -- has plummeted. The London Interbank Offered Rate, or LIBOR, stands at 0.29 percent today. It soared above 6 percent last September when fear threatened to choke off lending throughout the financial system.
But those improvements are somewhat misleading. Lending -- especially for homes -- is being greased by trillions of dollars the federal government has made available to banks.
The Federal Reserve has provided nearly $340 billion in low-cost loans for banks. It has purchased $625 billion worth of mortgage-backed securities to drive down interest rates on home loans. The Federal Deposit Insurance Corp. is guaranteeing about $300 billion in bank debt, which enables banks to borrow at lower rates.
No one wants to see a return to the easy credit that led to the financial crisis. The question is when will credit return to normal -- not too loose, not too tight and not propped up by the government?
Not soon, financial analysts and government officials say.
"We will not make the mistake of prematurely declaring victory or prematurely withdrawing public support for the flow of credit," says Lawrence Summers, the White House's top economic adviser.
Some analysts think it could take four or five years for the Fed to withdraw the money entirely and shrink a balance sheet that is now about $2 trillion, more than double what it was when the financial crisis struck.
The government's role in steadying the housing market is huge. Home sales are rising, but more than two-thirds of U.S. mortgages made in the first half of this year were later sold to Fannie Mae and Freddie Mac, which are 80 percent owned by the federal government. Three years ago, Fannie and Freddie's combined share was 33 percent, according to Inside Mortgage Finance, a trade publication.
Some financial analysts fear what will happen as the government winds down its lending programs. These analysts say banks have become so hooked on federal aid that they may become even more reluctant to lend once it is gone.
The mortgage industry is particularly worried. It has been pressuring the government to extend an $8,000 tax credit for first-time home buyers, fearing a recent increase in homes sales could prove fleeting without the tax break. The White House said Wednesday that it's considering extending the tax credit, which is scheduled to expire in November.
"It's the No. 1 question in the market: Can we wean ourselves off our addiction to cheap government-supplied credit?" says Mitch Stapley, chief fixed income officer at Fifth Third Asset Management in Grand Rapids, Mich.
If not, the nascent economic recovery could be cut short. Weak lending and borrowing would limit corporate and consumer spending, which accounts for 70 percent of economic activity.
The incentives are especially important these days, lenders say, because the habits of borrowers have changed.
In a sign that the recession and rising unemployment have made people leery about taking on more debt, the national savings rate was 4.2 percent in July. It dipped to a low of 0.8 percent in April 2008.
Big banks are not risk averse. Rather, their reluctance to lend reflects the fact that they must conserve cash to absorb billions in losses still expected to occur from bad loans that were made before the crisis. FDIC-insured banks cumulatively lost $3.7 billion in the second quarter, dragged down by growing numbers of bad loans. These banks set aside nearly $67 billion in the quarter in anticipation of future losses from soured loans.
Another factor sapping their appetite for lending is their diminished ability to pool loans into securities for sale to investors, a process known as securitization. This secondary market allows banks to reap fees when they sell the securities, as well as get cash to make more loans.
At its zenith, the securitization market funded $9 trillion in loans. The collapse of Lehman Brothers led panicked investors to pull their money out of the marketplace virtually overnight, wrecking the securitization business.
"The assembly line for loans is broken," says Whalen of Institutional Risk Analytics.
Federal Reserve Chairman Ben Bernanke predicted this week the market "will come back" but probably not at the size it was.
For consumers, that's made qualifying for credit a challenge.
Germaine Code, of Grand Rapids, Mich., was turned down last month for a mortgage on a $135,000, three-bedroom home because of delinquencies dating back more than 10 years that he says should have been removed from his credit history.
"The bank said my credit score was good but that I needed to get those (delinquencies) taken off and that my wife needed more time in her job," says Code, who was able to get a lease-to-own option on the house.
During the boom years, home buyers needed a credit score of 660 or above to qualify for the cheapest interest rates, says Greg McBride, senior financial analyst at BankRate.com. Today, they need a score of 740 or above.
Home lenders are also demanding proof of income and down payments of at least 20 percent. Before the bust, first-time home buyers often got mortgages with no money down and without proving they could afford payments.
The tough climate has forced many would-be borrowers to give up.
Consumers ratcheted back borrowing by $21.6 billion from June to July, the biggest drop since the Federal Reserve began keeping records in 1943. That left consumer debt at $2.47 trillion -- slightly less than where it stood at the height of the crisis.
"Lots of people are fearful for their jobs. Even if you have good income, you're probably cutting back on borrowing," says longtime banking analyst Bert Ely.
The drop in borrowing could slow the economy's recovery. That's why it's critical for the government to continue stimulating lending, especially in the crucial housing market, says David Olson, president of Access Mortgage Research & Consulting.
"If they cut back it would be catastrophic," Olson says. "We could have a second downturn."
AP Business Writers Rachel Beck and Dan Strumpf in New York, Ieva Augstums in Charlotte, N.C., Adrian Sainz in Miami and Alan Zibel in Washington contributed to this report.
COMMENT: Mortgage interest rates historically have been about 100% above the inflation rate for the last 30 yrs. With inflation at 0% and home prices deflating, mortgage interest rates for the last year have been about 5 to 6%, that means they are 500% to 600% above the inflation rate!
