HOW WE ALL GOT .  .  .

 . . . continued Dec. 2, 2007 (From In closing questioning at a 2008 Congressional hearing, Treasury Secretary, Henry (you can call him ‘Hank’) Paulson, Federal Reserve Chairman, Ben Bernanke, and SEC Chairman Chris Cox were each asked by  House committee Chairman Henry (don’t call him ‘Hank’) Waxman in a blatant attempt to further their claim that it was Wall Street that created our present “financial crisis,” whether sub prime loans were the cause of the current financial crisis. (Actually, it was Wall Street - but more on that later).

(February 13, 2010): See the "more later" below, when I get in the mood to write it (like when I'm not sober).

All three witnesses attributed the housing collapse  to sub prime mortgages. As briefly as I know how, let me explain: Regular people with real jobs were buying homes, and seeing their investments appreciate at a good rate. Those people who could not qualify for a mortgage loan (not enough income, poor credit rating, etc.) were missing out. Many formed or joined government subsidized advocacy groups such as ACORN to lobby congress and to pressure lending institutions into providing creative financing so that they too could get in on the real estate boom.

Donning teashirts and chanting "What do we want ? Housing. When do we want it? Now," they sat in at bank lobbies or picketed bank branches. Progressive politicians, particularly those like Barney Frank and Chris Dodd who regularly are paid off with large donations from such organizations passed legislation pressuring lenders to lend money to people, many of whom had no real means of repaying those loans. Not to worry. The value of homes was increasing so rapidly, that even dead beats were assured of making a profit - particularly those dead beats who have been milking handouts from the government for years - even generations.

Well, here are some points to ponder: Politicians give home owners tax breaks that are not available to renters : interest deductions, homestead exemptions; large deductions for capital gains. 

Contrary to popular opinion, the banking industry is a tightly regulated. When bank examiners make their surprise call upon a lending institution, primary among their purposes is to make sure that the lending institution maintains the Federally-mandated balance between assets and bad loans. 

The have-nots believed that they should share in the housing boom, inability to meet mortgage obligations notwithstanding. They joined advocate groups like ACORN and got a Republican congress to repeal the Glass–Steagall legislation, enacted by the United States Congress in 1933 as part of the 1933 Banking Act. Essentially, Glass-Steagall prevented Commercial Banks (the guys who provide 'safe' car loans and home mortgages) from engaging in riskier investments, leaving those operations exclusively to commercial banks.

With the heavy support of Wall Street, 'Conservative' Republicans in Congress passed and Bill Clinton signed the 1999 Gramm–Leach–Bliley Act (GLBA), eliminating most restrictions of Glass-Steagall

ACORN et al pressured lending institutions into making these risky loans. Third parties advertised for zero down payment and made the loans and then resold them to banks and thrifts.

Banking institutions are kept under tight raps by federal examiners. If their bad debt to assets ratio reaches a certain point, examiners force them to put more of their assets into reserve, thus preserving the financial integrity of the bank. Higher reserves means less money to lend, thus reducing a bank’s profitability. Not to worry. Help is on the way. Fanny Mae and Freddie Mac are quasi private entities set up by congress to purchase mortgage loans from banks and thrifts, thus freeing up capital for these banks to make additional loans. 

With Federal legislation and liberal advocacy groups encouraging them, and risk greatly reduced through quick resales to banks, Independent lenders signed up any warm body they could find, and then re sold the loans to banks. In turn, Freddy and Fanny assumed the mortgages from the banks. And why not? So what if homeowners couldn’t afford mortgage payments? Because of the increased demand, prices were rising so rapidly that even deadbeats could re sell for a quick profit.

So what went wrong? 

With huge bonuses in the balance, Freddy and Fanny executives cooked the books, and collected their rewards.

Because of increased demand, home prices soared.

So what happened? 

Now, once again, many of these same people who have "lost their homes" are out in their red tee shirts chanting: "What do we want? Healthcare. When do we want it? Now."

The word implied, but never spoken is "free" as in free welfare, free food stamps, free abortion, free housing, free healthcare. Here's some free advice: " What do we want? Jobs. When do we want them? Now."

You know the old expression . . . . . 


Jan 30, 2009: In dire economic times like these; in our darkest hour; in an economy headed for a crash; when it looked as though all was lost, what we needed was an economic guru to gallop out of the night on his white horse to impart his knowlede, roll up his sleeves, and save us all.

Instead - we got Tim Geithner. 

Timmy was the only man on the planet who could rescue us from this mess. And we need him right now - that's what a frantic Obama Administration told us breathlessly. Tim Who? What is his expertise ? Well, this is the answer to Myth 3 and Myth 4 on my Homepage - ready?

More than anyone, anywhere, Tim Geithner caused this recession. Tim Geitner was one of the 7 equal members of the Board of Governors of the Federal Reserve Board (The Fed). Currently, there are two vacancies on the Board. As the board member responsible for the district that includes the New York Reserve Bank (as in Wall Street - Hello !), Geitner was the most influential member of that board. In reality the Chairman, Ben Bernanke, has no more say over any other board member - and as head of the New York banking district (which, of course, includes Wall Street), Geithner and his district have more say than others. 

All barnyard animals are equal. Some are more equal than others. (Animal Farm, 1945).

The chief responsibility of the Fed is to maintain the integrity of the currency - essentially to keep inflation low . Their target inflation rate is 2%. Until 1987, the Fed controlled inflation by controlling M2 (the money in circulation plus savings plus time deposits). In 1987 the geniuses at the Fed decided we no longer had to guard the moneysupply - inflation was under control, and M2 was boring. Besides controlling the supply of money they printed brought them afoul of powerful enemies - more later.

First. It is totally irresponsible of the Federal Reserve, starting with Alan Greenspan, to drop the Federal Reserve lending rate to a low mark of 2%. So, In fact 1% interest rates are just plain stupid. Yet that's the level to which the Fed lowered rates - most recently in 20. At these rates, everyone will be tempted to borrow money - and everyone did just that.

Banks made risky real estate loans (after all if the deadbeat couldn't make payments, he could sell his house and make a huge profit. Where's the risk? Ummmm. well  .  .  .  .  read on.

Beginning in 2005, fearing runaway inflation, the Fed increased interest rates 17 TIMES ! !. (For chart click here) What did this mean ? Well, for the banks and Wall Street it meant a huge increase in interest collected on credit card and home mortgage debt. For the consumer, it meant higher monthly payments. In 2005 the prime rate was 1% which meant that most home mortgage interest rates were about 4%. Over the next three years, for little apparent reason (Google inflation tables online) Mssrs.Geithner, Bernanke and friends raised the prime rate to 5 1/4%.

So, if you had an adjustable rate on your home mortgage of, say, $300,000, at, say 8 1/4% interest (3 over prime) your monthly payment jumped  from about $1,500 to around $2,300, a whopping 53% increase. Now if your monthly income didn't happen to go up by $800.00, you were hurting - big time. So by the end of 2006 ordinary people with jobs fell behind in their mortgage payments; the hot real estate market started cooling; home values dropped; mortgages were defaulted; construction (the second largest U.S. employer - behind retail) ground to a halt. And so the cycle spiraled downward. Nothing to do with ACORN at all (well, almost nothing).


Mr. Geithner didn't have to raise interest rates to fight inflation (in this case - imagined inflation). The Fed actually has two other tools at their disposal. (1) They can stop printing money, or (2) They can require that member banks (that's all banks) keep more of their deposits in reserve (preferable alternatives in ordinary economic times, but impossible when your government is running the presses at the mint overtime to print money for the "Economic Stimulus). Either way, money becomes scarcer; rates on NEW loans goes up; demand drops, inflation drops. SO why didn't Geitner, Bernanke and friends open door number 2 or 3 ?

If you stop printing money,  Congress can no longer pay for all of those pork-barrel projects (I mean stimulus) that get legislators re-elected. Government contractors and suppliers get paid NOW. And, Congress compulsively purchases votes with their "earmarks," so they are not going to cut spending. Also, the Fed doesn't mess with the people who approved their 14 year appointment to the Federal Reserve Board. So, raise the reserve amounts for banks? Ahahahahahah ha ha. Here's the quiz. How many of the Federal Reserve Board members are umm Doctors? Roofers? Farmers? Auto Repairmen? Here's a shock. None. They are all Bankers and Wall Street Brokers - didn't see that coming did you?

January 24, 2010, update: Congress weighs Obama re-appointment of Ben Bernanke. 

GOT IT ? ! !

So the bankers of the Fed raised the prime rate, and the banks raised your interest payments - all in the name of controlling inflation, that in 2005 and 2006 did not exist. And we all paid the price. Then, because their Fed-generated gains killed the housing market, not just the sub-primers, but regular mortgage customers, even Wall Street and the banks finally felt your pain. Then the Politicians dutifully bailed them out with YOUR money. 

Party first, politician second - you, not at all.

January 24, 2010: Update: Paul Krugman, in his column in today's New York Times, proffers his endorsement of Ben Bernanke to be re-appointed as Chairman of the Federal Reserve, noting that Mr. Bernanke was responsible for getting Mr. Krugman his teaching position at Princeton.

As if I needed any further reason to reject Mr. Bernanke's re-appointment


For all of my business involvement, I never have had any Banking experience - well, other than borrowing money. But it seems rather simple:

When I was young several of my friends went to work for a bank. Some made it their career. Some, even those who became bank executives, did not even have a college degree. And why would you need one? The rules are simple.

Investors buy stock in a bank. The bank opens its doors. People deposit their money into your bank. (Are you with me so far?)  The bank pays the depositors interest. The bank lends that very same money out and charges higher interest. The interest on those loans is called gross profits. 

The bank pays its employees and expenses out of its gross profits and anything left over is called net profits. These profits are then paid as dividends to the investors. Simple enough, no?

Have you ever noticed how few classified ads you find advertising management positions available at a bank? Why is that? Probably because "Bankers" are hired through college recruiting and through "headhunters." High School grads need not apply - EVER. But, my goodness, if the rules are simple, who needs a Phd to run things?

Simple. The rules have changed. Now banks get involved with Derivatives, Hedgefunds, Options, Creative Financing, and Texas Hold 'Em. Now, for all of my alleged genius, I don't know what these terms mean, but I have a pretty good idea what the words derivative, hedge, creative, and Texas hold em mean and I don't recall my friendly neighborhood banker getting my input before gambling my hard-earned money in such risky schemes.

Of course, like my Congressman and Senator, my banker doesn't care what I think. He and his Wall Street compadres' donations to Messrs. Santorum, Dodd, Schumer, Frank, et al. make sure that they don't care what I think either. 

(can you say)

(Racketeering in Congress Only)

February 12, 2009: How is it that big Wall Street brokerage firms can (legally) advise their investor-clients which stocks and securities to buy, and collect a commission, then set up Hedge Funds and Derivatives to bet against  those same stocks - essentially betting that their initial advice to their clients will fail? Now I have no idea what a "hedge fund or a "derivative" is. But, I do know what the words 'hedge' and 'derivative ' mean; and I strongly believe that those banks and stock brokerage firms in which my retirement money is invested have no damn business hedging or deriving with my hard-earned money.

But Goldman-Sachs did just that. While their clients were taking a beating in the market, Goldman-Sachs had sold short, essentially betting that the value of their clients' stock would fall. Then they took a bailout from the government (you & me), essentially using my tax dollars as their personal slush fund. Two months ago their stock was trading in the 60's. Today it sold at 152. 

Mother of God, is this the end of Rico . . . .  ? (Edward G. Robinson 'Little Caesar' - 1931)


From the start I shall tell you, first, that ordinary Americans got screwed, and the collapse of the Economy was a direct result of that screwing. Second, by putting their own interests and greed ahead of our interests, the politicians, Wall St. brokers, and larger banks manipulated and took advantage of  the "system" for their own gain.


New York Times, February 13, 2010

HONG KONG - As most countries agonize over how to keep their barely reviving economies growing, China is already looking to slam on the brakes.

China's central bank moved late Friday to reduce lending to companies and individuals by requiring large commercial banks to increase the amount of cash they park with the central bank. The move . . . was meant to slow China's breakneck economy AND INFLATION. (my emphasis)

Well, gee whiz. Why didn't they put the Bernanke Brake on the economy - jack up the prime rate - hit the mortgage borrower? Then they could really have fun and raise it sixteen more times. That'll put the old inflation on the run.

Oh yeah, I forgot. They're commies. THEY don't screw (what is it?) their proletariat. Hong Kong (the Chinese Wall St.) can kiss those Marxists' asses. They are concerned about inflation; increasing bank reserves creates scarcity of funds; which means higher interest rates; which means fewer loans; which means the economy slows; which slows inflation.

Isn't life simple in China. Of course some Chines officials might take a bribe and let the banks or Hong Kong off the hook. On the other hand, if you get caught doing that in CHINA, they execute you.

We learn some lessons on Capitalism from the Reds. DEFINE IRONY.

After crushing the housing market through bad government loans to people who had no way to make their mortgage payments, the Obama Administration (through the FHA) is doing it again

FHA Lending Changes that Could Impact Real Estate Consumers

Did you know that in 2009, the Federal Housing Administration (FHA) insured nearly 30% of the single-family mortgage market and that more than 50% of all first-time home buyers used FHA programs?

In today’s challenging credit climate, many home buyers and homeowners are turning to FHA for insurance, to purchase loans, and for refinancing options to get out of risky ARMs or subprime loans. As a Member of the Top 5 in Real Estate Network®, I have access to information from the National Association of Realtors® (NAR) regarding recent and upcoming changes to FHA’s single-family program that could impact the use of these important programs for consumers in the future. According to Jerome Nagy, senior regulatory policy representative at NAR, in order to replenish its dwindling reserves, FHA has implemented or proposed the following changes: 

1.  Mortgage Insurance Premium (MIP)
FHA has increased the upfront MIP from 1.75% to 2.25% for borrowers while it awaits legislative authority to increase the annual premium. FHA stated it will decrease the upfront premium when they can increase the annual premium. 

2.  Credit Score Changes
FHA has proposed that borrowers with a credit score below 580 be required to make at least a 10% down payment. The minimum down payment will remain at 3.5% for all other borrowers. 

3.  Seller Concessions
FHA intends to propose a rule to decrease allowable seller concessions from 6% to 3%. NAR plans to argue against this decrease since closing costs differ greatly among states, and with fees on services (such as appraisals) increasing, seller concessions can be a vital part of closing the transaction. 

4.  FHA Loan Limits
Current FHA loan limits are as high as $729,750 in high-cost areas, and are set to expire at the end of the year and revert to lower amounts, potentially putting a damper on a housing market rebound. A decrease of current limits would adversely affect 612 counties in 40 states and the District of Columbia, reports NAR, which is urging passage of legislation to make the loan limits permanent.

5.  Condominium Rules
FHA is delaying implementation of “Mortgagee Letter 2009-19” and making temporary enhancements to the policy instead, such as eliminating the owner-occupancy requirement for FHA condo mortgages and reducing the number of units sold prior to FHA’s endorsement of a unit from 50% to 30%. 

Please pass this article on to anyone you know who could be impacted by changes to FHA policy. 


Shelia Ferguson 
Prudential Florida Realty 
Office: 786-581-1466 
Mobile: 305-323-0963

This page was last updated: February 8, 2016

(April 4, 2012)

With many mortgages now underwater, and soaring interest increases by the Federal Reserve, causing monthly mortgage loans to soar by hundreds of dollars, people were unable to pay the monthly vig and banks started foreclosure proceedings.

Rightly feeling that they were being screwed by the banks (and Wall Street - as it turned out), but unable to afford a lawyer, many homeowners just walked away from their homes. Those who chose to fight ran afoul of the overcrowded court system, and Republican state legislatures (like Florida), heavily represented by banking and real estate interests, passed ' fast-track' legislation that essentially caused lazy or over-burdened judges to throw people out of their homes through summary judgment decisions.

So the predatory lenders; developers, Wall Street bundlers, lobbyists, Fannie Mae, and Freddy Mac,and politicians (bought and sold by the former), all made a ton of money, and not one single one has gone to jail.

The home-owner who pays the salary of those politicians wound up on the street.

Is this a great country or what?