I have received several responses asking why I am making the connection between the mortgage industry and politics. Well the answer is this. Currently the Obama administration has appointed several Czar’s to watch over many industries / companies. The whole Czar thing is unbelievable to me as it is a communist approach. Currently the Banking Czar / Fed’s are telling the bank CEO’s that they will reduce their bonuses regardless of their financial standing. It is huge and people are missing the message.
Yes the banks received bailout funds, raised our interest rates, lowered our credit limits and are making it hard to get a loan and this all sucks! The problem here is that the average person does not realize how the banking business works. So I will break it down in simple form. Banks receive deposits and pay simple interest on these deposits. The deposits are used to make loans to people and this is where the banks make their money. Monthly account charges, overdraft fees, bounced check fees, ect are all fees charged in order to process paperwork. People seem to forget that there has to be a person processing this paperwork that receives a paycheck with all of the required insurances and taxes. Not to mention an office, phone, fax, computer, copy machine, office supplies, postage and all other required supporting systems. This all cost real money and it adds up.
Banks make money from lending money. Yes I said it from making loans. Here is the problem, banks also lose money from making loans that go bad. To date, I have not seen, read or even heard a single Media outlet report this correctly. Not CNN, FOX, MSNBC or a local TV or Newspaper. They all report pieces but never enough to connect the dots. So are the backs stock piling money? Absolutely! They have been put into a position to do so because the FDIC can do an audit at anytime and deem them underfunded and take them over just as they have done to over 100 banks since this meltdown began.
So what does that mean? Just as many people have suddenly lost their value in their homes the banks have lost too. The banks make loans based upon a percentage of deposits. A loan is then made to a borrower on a property and the borrower repays the bank or lender with interest. This is how the system works. It a borrower defaults on a property then the bank has to foreclose on the property and then the property is then sold and the bank collects the proceeds to cover their lost revenue and fees. Believe it or not the bank is to return any additional moneys collected from the sale to the borrower if there is any.
The problem here is that with the sudden real estate collapse that has hurt so many people has also hurt the banks balance sheets. The FDIC requires the banks to hold in cash reserves enough money to cover a foreclosed properties note value. Not current value but the notes value. That means the value of the property plus in cash reserves the difference need to note. This is important so here is an example, if the bank is holding a note with a balance due of $300,000 and the property’s value is now only $200,000 the bank has to hold in cash reserves $100,000 to cover the full value to the note. Now times this but all properties foreclosed or not and then you will get an idea of what I am talking about.
Foreclosures are what makes it into the media but the FDIC will use foreclosed and current notes when they do their audits so it is simple to see that most banks are borderline as best with their balance sheets. So where does this leave the banks? Every bank is doing everything that it can to raise funds to pay back TARP funds that they may have received. So they can get back to doing business their way and not the way the Fed’s want them to do so. This is why we have outrages credit card interest and new found check account fees. Until the banks get out from under the Fed’s thumb we are going to have to live with a horrible economy.
So what is the answer to fix the current economy? This is so simple that I do not understand why our elected lenders can not see the answer for the lobbyist. There are three major things that need to be addressed in order to get us on track.
Healthcare – This is a serious issue as everyone should have health coverage. Health cost can be cut 50% is we simple limited the malpractice suits. If there was limits on the lawsuits then insurance cost would be less and heath cost would be less. The current Healthcare from does not address malpractice and why not? Lawyers wrote the bill and they will not cut themselves out.
Economy – I know there has been a ton of money spent and I have not seen a dollar in my pocket, has any average person? All of this money spent has done little for the average man. We just had the largest collapse in real estate values in history. The money would have been better used as insurance if a bank actually imploded. The FDIC rules need to be relaxed here for a limited time in order for the banks to work their way out of this mess. Giving the banks money does little to make them work their way out. If you put the banks in a position to work their way out then more loans will get done as this is the primary source of income for the banks. Needless to say there would be more people working to process these loans and more people workings because the loans were done. This is not rocket science.
Environment – The environment is important to everyone. Global warming needs to be studied for a while longer before we enter into any treaty that requires us to pay money to lesser countries. Al Gore speaks about a science group that pointed out Global warming. These same scientist have now said that Global warming may have been caused due to sun flares. If the sun was to hiccup we would feel it in Global temp. We need to think about this issue a bit more.
Right & Wrong – Just a few days ago there was a horrible incident at Fort Hood. This is a clear situation of how gun control dose not work. No one on base other than the MP’s are suppose to have guns yet this guy had a gun has affected hundreds of lives. The gun was not the problem the person was and if you think bad people will not have guns then think again. Aside from the guns the Media is focused on the gunman and why he did it. Why is the countless family members and victims that have had their lives impacted by one gunman’s selfish and cowardly act. The Media covered the countless people who had their homes foreclosed and taken from them. Why are they not covering the people who lost their lives or the families that are now forever changed. Why and why the double standard.
Unemployment – Obama told us that if he did not get his stimulus package put through that unemployment would go to 8%. We are now over 10% unemployment. The America’s infrastructure of bridges, utilities and pipelines are failing and yet no real money is being spent here? With Obama, the green president, why isn’t any of the stimulus funds being spent on improved sewer systems if nothing else? Every year countless tons of raw sewage goes into our waterways and no one says a thing? Why? And why the double standard? Think about all of the jobs rebuilding the countries infrastructure would create and the tax dollars would follow. Again not rocket science here. And yet our elected leaders, people we voted to put in office, can not see this. Why? And why the double standard?