Corrupt Politics and Imprudent Bailouts are Two Peas in Same Pod

In a study that confirms what anyone with common sense already knew, Banks with political ties got bailouts.

U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.

Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.

Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds.

Political influence was most helpful for poorly performing banks, the study found.

Banks with an executive who sat on the board of a Federal Reserve Bank were 31 percent more likely to get bailouts through TARP’s Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 percent more likely to get capital purchase program funds.

President Obama said in October that despite the bailout, there was still too little credit flowing to small businesses.

Appearances Are Deceiving

The reason there appears to be “too little credit flowing to small businesses” is simple.

1. Banks are undercapitalized
2. Demand for loans is down
3. What demand does exist is from questionable risks

For details on those points please see Fictional Reserve Lending And The Myth Of Excess Reserves.

Politicians For Sale

Some of the comments to the article hit the nail on the head.

In response to a statement in the article “The banking industry has long been criticized for using political influence to obtain bailouts.” here is this gem of a comment:

How about, “The politicians have long been criticized for granting political favors in exchange for campaign contributions.”

If the politicians weren’t for sale, they couldn’t be bought.

Indeed, politicians are for sale and the results prove it, in spades, with disastrous consequences.

Mike “Mish” Shedlock
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Are Americans a Broken People?

Can people become so broken that truths of how they are being screwed do not “set them free” but instead further demoralize them? Has such a demoralization happened in the United States?

Do some totalitarians actually want us to hear how we have been screwed because they know that humiliating passivity in the face of obvious oppression will demoralize us even further?

What forces have created a demoralized, passive, dis-couraged U.S. population?

Can anything be done to turn this around?

Can people become so broken that truths of how they are being screwed do not “set them free” but instead further demoralize them?

Yes. It is called the “abuse syndrome.” How do abusive pimps, spouses, bosses, corporations, and governments stay in control? They shove lies, emotional and physical abuses, and injustices in their victims’ faces, and when victims are afraid to exit from these relationships, they get weaker. So the abuser then makes their victims eat even more lies, abuses, and injustices, resulting in victims even weaker as they remain in these relationships.

Does knowing the truth of their abuse set people free when they are deep in these abuse syndromes?
In the United States, 47 million people are without health insurance, and many millions more are underinsured or a job layoff away from losing their coverage. But despite the current sellout by their elected officials to the insurance industry, there is no outpouring of millions of U.S. citizens on the streets of Washington, D.C., protesting this betrayal.

Polls show that the majority of Americans oppose U.S. wars in Afghanistan and Iraq as well as the taxpayer bailout of the financial industry, yet only a handful of U.S. citizens have protested these circumstances.

New Taxes for New Hampshire Small Businesses

Prepare for the Great Depression.
Survival Seeds

Second Lien Holders Hold Modification Seekers Hostage: Is Bankruptcy The Solution?

One of the holdups on getting a loan modification is if the loan is securitized. For details please see Underwater, Securitized, and Screwed by the “Pass the Trash” Strategy.

A second snag is the Home Affordable Refinance Program (HARP) can only help borrowers who meet the following conditions.

  • The loan sits with the GSEs
  • The owner haven’t been more than 30-days late on the mortgage payment in the last 12 months
  • The first mortgage does not exceed 125% of the current market value of your home

A third problem is getting reluctant second lien holders (e.g home equity lenders) to cooperate in a modification. Second lien holders are typically wiped in a modification.

Bankruptcy Escape Hatch

To overcome these obstacles, some seek bankruptcy. Please consider Underwater Oregon homeowners find an escape hatch.

More than two years into Oregon’s historic residential real estate crash, an unusual opportunity presents itself to struggling homeowners.

An increasing number of Oregonians qualify to use a rarely utilized bankruptcy court maneuver to reduce, or even eliminate, their second-mortgage or home-equity debt.

To be eligible, homeowners must owe more on their first mortgage than their house is worth. That’s an increasingly large segment of the population. Recent studies indicate that 20 to 25 percent of Americans are “underwater” on their home mortgages.

The strategy works like this: Homeowners must first file Chapter 13 bankruptcy and file a motion asserting their home’s value has diminished to the point that it’s worth less than they owe on the first mortgage. If the motion prevails and the lender doesn’t challenge, the court will then cancel the lien the second-mortgage lender holds on the home. The lender’s secured debt is converted to unsecured debt, which most often is eliminated in full in the bankruptcy process.

And the strategy raises issues of morality, for lack of a better word. Many of these homeowners took out second mortgages to buy ski boats, trendy kitchen upgrades and other luxury purchases. Should they get off without repaying the loans? Oregon has at least six banks on the edge of closure after the mortgage crisis of the past year, and this could add to their risk.

Still, with Oregon’s foreclosures running at unprecedented levels and the federal government’s mortgage modification program proving a cumbersome disappointment, the “second lien strip” strategy could give some over-leveraged homeowners a new path to recovery.

“This is really important, and no one knows about it,” said Eric Olsen, a Salem bankruptcy lawyer whose firm has been among the most active in employing the second-lien strip. “I talk to real estate brokers, bankers, even attorneys, it’s just not known that you can get rid of your second mortgage.”

The second-lien strip is just another lump of coal for the country’s struggling financial sector, which already faces significant loan problems on multiple fronts.

U.S. lenders are sitting on nearly $1 trillion in second-mortgage and home equity loans. A maneuver that allows underwater homeowners to walk away from those loans with impunity will only add to the industry’s woes.

In any case, some of these second-mortgage lenders have done little to generate sympathy. They made ill-advised loans and some are now making it difficult for struggling borrowers to escape foreclosure.

One of the reasons the Obama administration’s Making Home Affordable mortgage modification program has not worked as well as hoped is because of uncooperative second-mortgage lenders. Both first- and second-mortgage lenders must sign off before a customer can get a loan modification.

“They’re holding these modifications hostage,” Cecala said. “These second mortgages and home equity loans may be worthless on paper. But the lenders still have clout.”

Tom Hooper, a Portland creditors’ attorney who represents banks, pointed out that even if a second-mortgage lender successfully contests a homeowner’s valuation, the homeowner could just give up and walk away from the home, tossing the keys to the lenders.

Then, in the event of foreclosure, the first-mortgage lender, not the second, gets the home or the sale proceeds when the home is auctioned.

“Winning could mean you’re losing anyway,” Hooper said.

My advice remains the same. Before Walking Away (Filing Bankruptcy, etc) Consult An Attorney, and make sure they know the laws and procedures for your state.

Without endorsing Eric Olsen, he can be located at Olsen, Olsen & Daines Attorneys at Law, Oregon and Washington Bankruptcy Attorneys.

I have no relationship with that firm, nor do I know anything about them, I merely located them from the article. My intent is to help people understand their rights and to do what is in their best financial interest.

Mike “Mish” Shedlock
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