As banks like BofA and Citigroup scramble to sell shares to raise cash for a partial TARP payback before Christmas bonus time, you can chalk up yet another victory for the banking industry and their legion of lobbyists on the Hill. Reuters reported today: "In a win for the banking industry, the U.S. House of Representatives voted on Friday to reject a measure that would have allowed bankruptcy judges to change the terms of mortgages for distressed homeowners." Link (Known as the "Cramdown measure")
Banks want to make sure none of that mortgage principal is diminished in any way, money that was simply created at the time of the loan by the bank. (The loan was not necessarily made from existing customer deposits thanks to the miracle of 'fractional reserve lending'. The money was just created by keystroke. Banks "create" ten times their actual cash reserves in loans.)
"Protect the principal" is a cardinal rule of banking. First you just create the money as above, then you structure a 30 year mortgage so that the greatest portion of every payment is in interest. This is set up so that it will take the borrower at least 15 years before any meaningful reduction is made on the principal, and by the 15th year the bank has collected about 95% of the interest on the loan. For credit cards the practice of protecting the principal was a shell game of capping the high interest purchases with clever low interest balance transfer and cash check offers. Then any time a payment was made on the account they would apply it first to the low interest cap shielding the high interest balances beneath it. They are hell bent to protect the principal on those shady loans at any cost.
This time the cost of protecting the principal on billions in bad home loans was fairly cheap, just a few million paid to good lobbyists, and some generous campaign contributions. Such a deal! Since banks no longer have to mark a loan to its current market value, they can carry it at full value on their books in the asset column, even though the property has actually lost 40% of its value and the "distressed homeowner" has lost all their down payment and equity, and is deep underwater. Some had turned to the bankruptcy courts asking the judge to mark down their loan to current real market value. But now a bankruptcy judge cannot "mark to market" either. The banking industry simply invaded "the people's chamber" in the house, and made sure the "people's representatives" all voted for the banks to defeat the infamous "cramdown measure."
So the House voted today and said the people will pay, while the banks still play. Meanwhile, the Wall Street Journal reported today that kids on Santa's lap have been asking for necessities like shoes, eyeglasses and a job for dad, not toys. Ain't democracy wonderful?
Banks want to make sure none of that mortgage principal is diminished in any way, money that was simply created at the time of the loan by the bank. (The loan was not necessarily made from existing customer deposits thanks to the miracle of 'fractional reserve lending'. The money was just created by keystroke. Banks "create" ten times their actual cash reserves in loans.)
"Protect the principal" is a cardinal rule of banking. First you just create the money as above, then you structure a 30 year mortgage so that the greatest portion of every payment is in interest. This is set up so that it will take the borrower at least 15 years before any meaningful reduction is made on the principal, and by the 15th year the bank has collected about 95% of the interest on the loan. For credit cards the practice of protecting the principal was a shell game of capping the high interest purchases with clever low interest balance transfer and cash check offers. Then any time a payment was made on the account they would apply it first to the low interest cap shielding the high interest balances beneath it. They are hell bent to protect the principal on those shady loans at any cost.
This time the cost of protecting the principal on billions in bad home loans was fairly cheap, just a few million paid to good lobbyists, and some generous campaign contributions. Such a deal! Since banks no longer have to mark a loan to its current market value, they can carry it at full value on their books in the asset column, even though the property has actually lost 40% of its value and the "distressed homeowner" has lost all their down payment and equity, and is deep underwater. Some had turned to the bankruptcy courts asking the judge to mark down their loan to current real market value. But now a bankruptcy judge cannot "mark to market" either. The banking industry simply invaded "the people's chamber" in the house, and made sure the "people's representatives" all voted for the banks to defeat the infamous "cramdown measure."
So the House voted today and said the people will pay, while the banks still play. Meanwhile, the Wall Street Journal reported today that kids on Santa's lap have been asking for necessities like shoes, eyeglasses and a job for dad, not toys. Ain't democracy wonderful?
