The Pennsylvania Progressive

"It Might Be A Recession"

There's an old saying, it's a recession when your neighbor loses his house job, a depression when you lose yours.  Americans are losing houses, jobs, incomes and their middle class status in waves and have been for some time but Federal Reserve Chief Ben Bernanke grudgingly admitted yesterday "we might be in a recession."  Hold the presses folks we have breaking news!

The Bush people are taking great pains to avoid admitting the economy is in the tank.   Piled upon bad news from Iraq, increased numbers of those who are uninsured, record foreclosures and tight credit markets, they fear the weight of all these issues on the voting populace come November.

Here's a news flash:  the voters already know we're in a recession.  They're the ones who have seen the real wages decrease over seven years of failed trickle down policies, they're the ones losing their jobs and their homes.  They are the ones who are losing home equity due to a rash of foreclosed homes in their neighborhoods.

The arrogance of those in power these past seven years is staggering and one of the causes of our ennui.  Everything was deregulated and nothing enforced.  Markets ran wild and the rich got richer while the poor got poorer.  Millions of middle class people fell into poverty under George W. Bush because they were more focused on gay marriage than their own financial stability.  These people have awakened the hard way, asleep in cardboard boxes under bridges and more are on their way.

It's nice that Bernanke has realized "it might be a recession."

Mortgage Meltdown Solutions

It comes down to regulation and enforcement.  Without enforcement, of course, regulations mean nothing.  We've witnessed this for the past seven years as BushCo has refused to enforce any regulations for business, the mining industry, the environmental laws, or Wall Street.  Regulations and laws are a beginning but when an Administration decides they aren't going to enforce the laws and regulations we wind up in a trap of our own making.

The current recession IS a trap of our own making.  Americans voted against their own financial interests in 2000 and again, in 2004.  Clearly demarked as being for big business and against workers and middle class families, George W. Bush and his Republican cohorts were elected twice to do exactly what they have done:  destroy the economy and lives of working people.

Many experts and pundits wrote about this at the time because it was a remarkable story.  Average, normal Americans voted against their own financial futures because they were more concerned with God, guns and gays.  These were the smokescreens the GOP used to con and brainwash these voters.  Millions fell for the scheme and voted for Bush/Cheney. 

Now they are losing their homes, paying so much for energy they cannot afford much else, are stuck in an economy quickly going down the drain and wondering how it all happened.  Let me explain:  you voted for George W. Bush.

Financial Sector Welfare

The Federal Reserve rescued financial icon Bear Stearns to the tune of $200 billion tax dollars Friday and JP Morgan Chase immediately swooped in to suck up the bank at $2/share.  Had the tax payers not injected the cash Friday Bear Stearns would have crashed due to a run on the bank.  We don't have money for health care or roads and bridges but we pump $200B into a bank without a second thought.

Of course the fed had to or the economy might have collapsed over the weekend.  This is a darned if you do darned if you don't scenario caused by a severe lack of regulation, oversight and enforcement.  Typical Republican economic mismanagement.  You can't trust the GOP with your tax dollars be it pork, wars of choice or allowing their corporate friends free rein.

The JP Morgan Chase takeover really stinks however because you subsidized this.  You got screwed by unscrupulous mortgage brokers and crooked appraisers, by hedge funds speculating on packaged mortgages and a few Congresses and a President who refused to regulate these markets.  Bear Stearns' stock dipped from $171 14 months ago to $2 today.  This bargain basement price invited a quick takeover due to a nice taxpayer bailout.

In the eighties we had a similar multi billion dollar taxpayer bailout of the financial industry.  Ronald Reagan and his friends deregulated the savings and loan industry and you paid dearly for that mess.  Neil Bush (the president's brother) and John McCain were two of the unscrupulous villains involved in that mess.  Now McCain is into financial hijinks again, trying to worm out of public financing for his campaign after using it to secure a multi million dollar loan and escaping about $4 million in ballot access fees.

Republicans had better stop screaming about funding programs for the poor when we're spending billions bailing out their friend's bad decisions.  Where, exactly, does their credo of personal responsibility begin and end?  Wall Street?

Wall Street Bailout

While homeowners scammed by unscrupulous mortgage brokers, lenders and appraisers are losing their houses in record numbers the Bush administration is bailing out the banks first.  The repeated cuts in the fed rate are a back door welfare package because it significantly increases bank profits.  These rate cuts aren't be passed on so banks are pocketing the difference.  Banks are also becoming even more aggressive about fees and penalties for their retail (those with checking and savings accounts) customers.

Of course if the banks begin failing we're in a whole other kettle of fish, one with hungry sharks circling around what's left of our economy so these are difficult decisions.  One component of the Carlyle Group was unable to meet a margin call and now Bear Stearns, a giant Wall Street firm, was unable to pay its lenders.  The Federal Reserve stepped in and saved the bank. If they hadn't:

"The Fed used a little-known power it last exercised in the 1960s to stem a run on Bear Stearns that could have sent multibillion-dollar losses cascading across the world financial system, causing more failures on Wall Street and threatening to choke off global economic growth."

This is how close to the brink Republicans have placed our economy.   Add to this a dollar which is on its way to be worthless (yes, deficits DO matter), a war without end which is strangling our national finances, the fact we are paying for this war with foreign loans because we refuse to tax the rich,  and I wonder why either Obama or Clinton wants to inherit the mess.

Let's remember this is largely an economic catastrophe caused by the lack of regulation.  Had the federal government established clear, fair rules for the mortgage industry and actually enforced them the meltdown in the sub prime market, the catalyst for all these troubles, could have been avoided.  We need look no further than the scams that happened in the Poconos targeting first time, naive home buyers where the nexus of the crisis began.

Economic Crisis Spreads to PHEAA

The credit crunch bringing down our economy has now spread to student loans as PHEAA (Pennsylvania Higher Education Assistance Agency) announced it will cease making federally backed student loans.    It has been joined in this by The College Loan Corporation.  Problems with debt of all types are now spreading to the student loan area which will make things difficult for young people trying to afford the skyrocketed cost of higher education.

Of course PHEAA has had all sorts of scandals and problems over the past year.  Lavish spending on retreats and perks for Board members, legal costs fighting news media requests for that information and their cluelessness about their extravagant behavior ruined the agency's reputation.  PHEAA's management seemed completely oblivious to the public perceptions that they didn't understand their mission.  This new development will prompt these critics to say "I told you so" and point at all those lost dollars as money which could have been used to actually finance loans for students.

Far be for me to say it though...

Update:  Congressman Kanjorski moved today (March 4th) to avert more serious repercussions in the student loan market:

“The current credit crunch is now deeply affecting the student loan industry.  In light of PHEAA’s recent action, I renew my call on the Administration to work to resolve these matters,” said Chairman Kanjorski.  “Without quick action by the Administration to shore up the student loan market, other providers may make similar decisions.”

Many student loans lenders in the Federal Family Education Loan Program (FFELP) are facing liquidity problems as a result of the credit crunch.  One such lender, the Pennsylvania Higher Education Assistance Agency (PHEAA), last week stated that it would suspend its participation with the program as of March 7.  Another major student loan lender, College Loan Corporation, also recently announced that it would end its participation in the FFELP.

In Pennsylvania alone, about 600,000 Pennsylvania students currently attend post-secondary schools with the assistance of low-cost federal loans.  Currently, 80 percent of students nationwide obtain their school financing through FFELP.  If other lenders make similar decisions, these students could face serious difficulties in financing their educations.

“To fix these problems, the Administration has several options,” added Chairman Kanjorski.  “They include having the Federal Financing Bank purchase federal student loans, modifying the rules of the Federal Home Loan Banks to permit the use as eligible collateral of federally guaranteed student loans and securities pools of such loans, or permitting FFELP lenders to access funding through the Federal Reserve.”

Specifically, to provide stability to student lenders the Administration could direct the Federal Financing Bank, which is already authorized to purchase obligations issued, sold, or guaranteed by federal agencies, to buy federally guaranteed student loans.  The Administration could also modify the rules of the Federal Home Loan Bank System to permit the use as eligible collateral of federally guaranteed student loans and securities backed by such loans.  Finally, the Administration could use the emergency authority of the Federal Reserve to allow FFELP lenders to access funds through the Discount Window program or to participate in the newly created Term Auction Facility program.

Chairman Kanjorski also believes that the U.S. Department of Education should prepare to implement the lender-of-last resort program should the problems in the student loan market worsen.  Under the Higher Education Act, FFELP guaranty agencies must serve as lenders-of-last resort to prevent any possible problems in access to student loans by providing a nationwide network of backstop lenders.  While this program is, as its title says, a last resort, Chairman Kanjorski wants the Education Department to be prepared for such action.

Additionally, Chairman Kanjorski today released a letter sent late last week to the Chairman of the House Committee on Education and Labor, Congressman George Miller (D-CA), urging him to work to protect the viability of the FFELP in order to ensure that students continue to receive needed loans.  One day later, Chairman Miller and Senator Edward Kennedy (D-MA), the Chairman of the U.S. Senate Committee on Heath, Education, Labor, and Pensions, sent a letter to Education Secretary Margaret Spellings.  They called on her to take steps to ensure “…that recent activity in the credit markets does not adversely affect students’ ability to secure federal student loans in a timely manner.”

“We are still awaiting some announcement from the Administration that they are working to address these problems,” concluded Chairman Kanjorski.  “Many Members of the House Financial Services Committee in the letter that I previously sent on February 15, and now Chairman Miller and Chairman Kennedy, have reached out to the Administration to urge action on this issue that will greatly affect the lives of students throughout the country. American students cannot afford to lose their financial aid.  These officials must act soon.”

Bush Blocking Homeowner Relief Measures

A unique phenomena is happening with people strapped in debt:  they have been paying their credit card bills before their mortgages.  Forced by high energy prices and soaring adjustable mortgages they are faced with hard choices and the bankruptcy bill is guiding them to new behaviors.  The bankruptcy bill passed by Republicans and signed by Bush was a huge government corporate welfare program for the banking industry.  It makes it nearly impossible for people to declare bankruptcy and begin again.

The alternative they face is whether to allow their bank to take their home since that erases that debt from their financial portfolio.  The credit card debt cannot be made to disappear so that is what homeowners are choosing to pay.  This is fueling the foreclosure crisis along with the other factors.  Congress is seeking to provide some relief from the onerous provisions of the current law and George W. Bush has threatened a veto.

The President said, again, that he doesn't think the country is in a recession.  Is this denial or cluelessness?  Maybe he needs to get more and meet real people, not those robotic clones collected for his fake "town halls."

Home foreclosures were up 57% in January from a year ago and prices are climbing on everything.  Spring will provide some relief to people paying $500/month for heat but will be negated by $4/gallon gasoline.  Sure, lots of people made bad decisions buying McMansions and huge cars and trucks but we cannot allow these failures to pull down the entire economy.  That allows their bad decisions to seriously affect your financial situation.

One thing everyone needs to do is get financial savvy.  Bookstores are filled with good tomes on personal finance.  Go buy a few and learn what and how to properly manage your finances.  Watching Gerri Willis' excellent advice on CNN is another resource.

Project Lifeline Aiding Homeowners Facing Foreclosure

Six major banks announced a new program today to aid homeowners facing imminent loss of their homes.  Banks don't want to take your home and force you onto the streets.  It doesn't help them or you and only adds tot he glut of unsold homes they cannot turn into cash.  Worse, vacant homes are being vandalized and stripped of metal for recycling by criminals.   This is forcing property values down even more in these neighborhoods.  It is a vicious cycle.

Project Lifeline is a new program for those already in foreclosure.  It freezes the process for thirty days so homeowners can renegotiate their mortgages or refinance.  Bank of America, Washington Mutual, Wells Fargo, JP Morgan (no relation), Chase and Countrywide are being backed by the US Treasury Department in this initiative. 

The new program is open to all borrowers, not just those victimized by the sub prime market.  You must be 90 days behind in your mortgage payments.   Foreclosure normally begins once a mortgagee is 90 days behind.

Mortgage counseling is also available.  Congressman Paul Kanjorski announced $230 million in funding for this assistance last week.  If you are having financial trouble contact your lender about establishing new terms.  They don't want your house, they want your loan and regular payments.  They will be willing to work with you rather than have to go through foreclosure which costs them money for legal fees and wind up with an empty house they cannot resell.  Take advantage of the assisstance available through these programs.

Kanjorski Takes Action on Appraisers

Paul Kanjorski, Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, announced yesterday he has inserted a provision in law to require real estate appraisers to be independent and not tied to mortgage lenders or real estate agents.  This is a good step forward.  The overheated real estate market of the last few years resulted in many homeowners now residing in homes that aren't worth what is owed on them.  These folks are "upside down" in their homes and are unable to sell them and pay off the balances of their mortgages (yes, some have multiple mortgages).

People bid up prices on homes to get their "dream house" and now they are living in a nightmare.  Appraisers contributed to this by inflating the appraised value of these homes so they brokers and agents could close their deals and laugh to the bank.  Now many people are in tears from the irrational exuberance  which was fueled by greed and  the lack of regulation.

In their desire to settle these deals apraisers were used with ties to those profiting from the deals and told what value to put on the properties so the 95% or 100% mortgages could be approved.  Unfortunately people who bid well over asking prices and then borrowed that entire amount were, essentially, defrauding the banks.  The banks didn't care because they packaged and sold the mortgages to securities firms who packaged them with other mortgages and traded them through unregulated hedge funds.

These financial markets have now collapsed.  The repercussions are also affecting municipal bond insurers and even corporate bonds as banks teeter on the brink of collapse.  Some radicals are proposing the federal seizure of banks, something which is simply insane.  What we need is proper government regulation and oversight.  Republicans failed miserably in this regard because of their ideopogical hatred of "big government."  Every time you listen to a presidential candidate rail against "big government" and governmental intrusion in business run away as fast as you can.  These are the people who are bought and paid for by greedy business interests responsible for the destruction of our economy.

Guess who winds up bailing things out after their unbridled greed drives us over the brink?  You, the taxpayer.  You spent over $100 billion bailing out their savings and loan debacle under Ronald Reagan.  When you hear a GOP candidate worshiping at the Reagan altar remember how many of your taxes were spent bailing out the banking industry one before and how many more are going to do it again.

The CEO's have their golden parachutes and are bailing out with multi-million dollar severance packages.  They aren't hurting.  If your neighborhood collapses as home after home forecloses you will hurt though.  Your local taxes will go up as that real estate tax base shrinks as home after home goes vacant.  Paul Kanjorski is correct:  none of us is an economic island, this will affect all of us and all of us must do what is necessary to fix the broken system.

Rebate checks are not the answer.  Debt is what caused this mess and invoking another $150 billion in federal debt for a short term stimulus is not the solution.  We have to fix the system.  That means regulation and oversight.

Congressman Paul Kanjorski announcing the funds for mortgage counseling:

Mortgage Counseling

Congressman Paul Kanjorski is one of few people in Washington seriously trying to address the potentially catastrophic issues arising from the mortgage meltdown crisis.  He understands all these issues and is doing what is possible to stem the bleeding.  Their is no magic cure for the economic troubles however, or as he puts it, "there is no silver bullet."

He announced $230 million in funding for mortgage counseling services this year.  A shocking 40% of homeowners facing foreclosure never even contact their lender.  Many have no idea there are alternatives to foreclosure and ways to hold off what they feel is inevitable.  Banks don't want your home, especially in this climate.  Houses are sitting unsold, foreclosed homes are sitting empty, magnets for crime and looting and are bringing neighborhood property values down.

Contacting a counselor and discovering your options and opening negotiations with your lender to see what can be done are things a mortgage counselor can assist with along with educating delinquent homeowners about some of the intricacies of finance.  400,000 homes have already completed foreclosure and an estimated 2,000,000 more could cripple our economy.  This has the potential to affect everyone, as Kanjorski said, "few people I know are islands unto themselves, the economy affects all of us."

This isn't the time to point fingers and lay blame on greedy lenders, mortgage brokers, homeowners looking to get rich flipping houses or crooked appraisers.  There is plenty of blame to go around and the biggest blame sits in Washington where the belief in deregulation constantly lands us in these economic crises.  Regulation of these industries would have prevented this crisis.

Rather our first priority must be to stave off economic disaster.  That means, as Kanjorski says, invoking the Golden Rule:  we must save as many homeowners as we can because we should.  Also, those foreclosures will eventually affect every one of us if we fail.  "This is going to be a difficult, frustrating process," the Congressman admitted.

The counselors will be free to homeowners seeking advice and they can get assistance by calling 1-888-995-4673.  The Pennsylvania Housing Finance Agency also has help at 1-=800-822-1174.

Kanjorski Wants Expansion of Stimulus For Seniors

Congressman Paul Kanjorski introduced legislation today to expand the economic stimulus package to include those Americans on Social Security.   Most people on SS would not be included in the present agreement because they do not pay taxes.  Kanjo's plan would provide a good economic boost because those on these fixed incomes would likely be more likely to spend their rebates.  This is a very good idea if we're resigned to the policy of injecting a short term stimulus through consumer spending.

From the Congressman:

"Today, Congressman Paul E. Kanjorski (PA-11) will introduce an amendment to the economic stimulus package to include cash benefits for those citizens whose only source of income is Social Security.  There are approximately 24 million citizens nationwide who are currently excluded from the stimulus package, which was agreed upon by President Bush and House leadership, because they do not receive taxable incomes which are required for the tax rebates.

“I applaud the President, Speaker Nancy Pelosi, and Minority Leader John Boehner for quickly coming to an agreement to stimulate the economy through legislation which is timely, targeted, and temporary,” said Congressman Kanjorski.  “Unfortunately, they overlooked many senior and disabled citizens who continue to feel pressure from the slowing economy and are excluded from the tax rebates.  With increasing gas and heating prices, prescription drug costs, and food prices, we cannot afford to leave our senior and disabled citizens out of such a package.  I will work with Senators Specter and Casey to include such an amendment to the stimulus legislation, which will provide needed cash benefits for senior and disabled citizens.”

The President and House Democratic and Republican leaders settled on a $147 billion economic stimulus package last week, and the House will vote on this legislation tomorrow.  The legislation includes tax rebates for up to $600 per individual and $1,200 per married couple, plus $300 per child.  Under the current legislation, only citizens who earned taxable incomes are eligible for rebates.  Unfortunately, this means that at least 20,000 seniors in Pennsylvania’s 11^th Congressional District who receive only Social Security checks, but not taxable incomes, will not receive any benefits.

While Congressman Kanjorski will try to introduce an amendment to the economic stimulus bill, he may be prevented from doing so due to procedural restrictions.  This could prevent any amendments from being considered in the House.  If this is the case, the Congressman will speak on the House floor in support of expanding the current stimulus package to include senior and disabled citizens.  He will also work with Senators Specter and Casey to encourage them to offer such an amendment in the Senate."