DUH!

“Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress,” said Federal Reserve Chairman Bernanke on Friday to a symposium on the mortgage crisis and the economy at the University of California, Berkeley. Glad you noticed, Ben. Think Henry shares your feeling? Ben even mentioned some possible directions, like federal insurance for bonds used to back mortgages. Keep thinking, Ben, ‘cause I’m sure that, in time, you and that Treasury guy might figure all this out. Glad this little issue finally crossed your radar screen; kind of thought you might have missed it.

The folks at JP Morgan Chase seem to have got the picture… even as the feds just muse about the alternatives. They actually heard the cries of angry consumers, more than you can say for our elected and appointed representatives. According to an Associated Press report on Friday: “JP Morgan 's expanded program aims to help avoid foreclosures on an estimated $70 billion in loans, which could help as many as 400,000 customers. The New York-based banking giant has already modified about $40 billion in mortgages, helping 250,000 customers since early 2007… JPMorgan will not put any loans into foreclosure as it implements the expanded program over the next 90 days.”

What’s so stunning is that this restructuring comes from a big boy financial institution, operating in a period of falling values, consumer prices and increasing joblessness – a period of possible prolonged “deflation” where positive growth of any kind becomes difficult – without the possibility of “syndicating” loan packages (sharing the risk) with other banks, because banks don’t trust each other enough to lend to each other. I’ve trashed a few financial institutions in the past, but this time, I’ve got to give some serious kudos to the men and women of JP Morgan Chase. That took guts.

Some people who aren’t homeowners are wondering why this matters to them; they are angry that some folks might get federal help while others do not. Maybe it’s easier to think of this mortgage crisis as a tornado that touched down and took out a bunch of your neighbors’ homes – looking like a random assault from an aerial map. If your neighbors’ homes remain unfixed, even if you are a renter, you won’t like living in that neighborhood very long. Values will crash, and the very character of the neighborhood will change for the worse. And let’s face it, some of those neighbors’ homes may just have to be cleared for new parkland… not everybody deserves to be bailed out (not to mention that there should be a way for the taxpayers to get paid back too).

The shame of all this is that a big old bank has come up with answers, when our government can’t seem to get out of its own way to begin the fix. JP Morgan’s already implementing a solution while the government’s still playing with “possibles.” Please send the moving trucks to Washington at little earlier than January… I’ve got this list of people in D.C. that need to be moved out right now!

I’m Peter Dekom, and I approve this message.

Has the Economy Fallen to a Level Where the Fall Cannot be Stopped?

Maybe. We’ve had the government struggling with building an operating room as the patient lies bleeding to death on the floor. Foreclosures have accelerated. Credit lines have been pulled and substitutes are not available. As assets drop in value, some companies that do business with a single bank (often a requirement of getting a credit line) have watched (sometimes without any notice) as their banks drained the company checking accounts under the complex contracts that cover dropped values with all of that company’s cash at that bank. Let the checks bounce. No matter that this money was earmarked for payroll. Layoffs have begun, and without workers to create new values and receivable financing to collect old ones, well, expect a lot of companies to close their doors permanently.

The markets are like very little children, except for the myths that sustain them (like Santa Claus and “they can’t all be bad loans”), they don’t really lie. One year ago today, the Dow was at 14,164. This morning, it was over 9,100. At the end of the day, reflecting a depression-level trend line, the market closed at 8,579 – a 679 point one day drop, the seventh consecutive down day on the market - $8.3 trillion worth of value destruction in this year. The Dow has lost 5,585 points, or 39.4 percent, since closing Oct. 9, 2007. General Motors stock hit a 58-year low. The markets are bawling like a baby! They are screaming that whatever the U.S. government has done just isn’t what needs to be done, is way too slow and way too little.

And every day that the government does not do the obvious – 1. stop foreclosures dead in their tracks (with a moratorium of reasonable duration to deal with the parts that need fixing) and 2. restore the credit liquidity (mostly based on lending against sales that have already been made but not collected – receivables) to fund payrolls – the problem will rise exponentially. You can’t operate on this patient without stopping the hemorrhaging first. The scalpel comes later. How many different ways do I have to repeat the obvious before someone of responsible power actual does it? I’m not alone. I hear a lot of voices joining in this obvious chorus.

People without jobs don’t buy products, pay rent, buy homes (which they can’t get loans for anyway), create value or pay taxes. Foreclosed houses flooding a market with no buyers just make all the good homes less valuable. And since banks and savings & loan lenders have to declare mortgage and loan defaults as part of the regulatory process and the reporting and disclosure rules, without a moratorium and some relief from the government, they can’t really stop. When a dam cracks, you either plug the hole or watch it widen until the dam falls.

Sorry Ben, the markets have all but laughed your rate cut into oblivion. Sure the banks and financial institutions are borrowing from the Fed at your pretty new rates, in record-breaking amounts. But they are hoarding the cash! Sorry Henry, all that Goldman Sachs training still doesn’t make the trickle down bailout (from the institutions being bailed out to the homeowners and small businesses) a viable alternative at this point. You waited too long to use the tools you were given, and nothing is forcing the banks to push the money they are hoarding down to the level where it’s needed. Why are the hoarding that cash, Henry? To benefit from the fire sale of our misery? And the President will address this issue tomorrow morning. Maybe he has the answer. Let’s see. We’re at strike two in the bottom of the ninth… and it sure doesn’t look like we’re winning.

So read my lips! Go to the bleeding… the wound itself, and apply a tourniquet! Now! Not words, plans and theories. Action! Stop building an operating room for a patient that might need a coroner!

I’m Peter Dekom, and I wish this message weren’t necessary.

Writing a Paper on What Should have Been Done to Fix the Great Depression

Federal Reserve Chairman Ben Bernanke has spent his life studying banking and economic cycles. From his days as a graduate student at the Massachusetts Institute of Technology to his 2004 book, Essays on the Great Depression, he has drilled down on managing economies in a crisis. Two days ago, he agreed to buy up short term commercial paper (discussed in my last blog) to ease the credit freeze, and this morning, he presided over an emergency cut of a half point in the rate that the Fed charges banks. How did the markets respond? The NYSE dropped 5% after the first decision, and the markets remained down after the second. He’s clearly not reading my blog… or that of anyone else who has made these suggestions.

Who am I to tell the Fed Chairman that despite his best intentions, the failure of both the Department of the Treasury and the Congress to reach down to the grassroots of America and address the first line of attack – helping human beings with homes (even renters… nothing like renting from a homeowner who is being foreclosed!) who need to know they are not losing their homes – is only making things worse? I somehow feel morally obligated to try. We do not need more houses dumped into a market that cannot sell what’s there now – because no one has money to buy houses and there are almost no loans to support even these low values. The real estate market does not need to be further depressed. Home value is how most folks look at their net worth.

And we need cash at level where small businesses can meet their payrolls. I’m sounding like I am beating a dead horse, but no one seems to be addressing the obvious! When businesses cannot borrow money against stuff that their customers already bought and are paying for, when then cannot meet payroll because of this huge factor, someone has to step in before all the people who need to get paid are laid off instead. Fund that market now!

This mess hurts horribly. We need to stem the tide and address the human beings in the middle and at the bottom who can’t afford lobbyists, who cannot wait for a trickle down from the lending institutions that are getting “bailed out.” According to Peter R. Orszag, director of the Congressional Budget Office, addressing a House subcommittee, our pension plans have loss over $2 trillion in the past 15 months! People cannot retire, and the young folks waiting for new jobs are seeing fewer vacancies, beyond those caused by the meltdown, because fewer people are leaving their jobs for retirement.

It almost seems as if those in Congress, from both sides of the aisle, and the Executive Branch are intentionally leaving a mess that cannot easily be rectified for years to the next President and the next Congress. In the end, where everyman stares blindly at those with “golden parachutes” wondering why that can even happen, perhaps our elected representatives can help us with a lousy old mattress to land on in a world where they seem to have shoved us out a plane door.

I’m Peter Dekom, and I approve this message.