Maybe we need to set a restore point for the economy

You know when your computer crashes you go back and set a restore point. This is a point where the problem did not exist. It has gotten me out of many tight spots in computer land. But maybe we need a restore point for the economy. Maybe we need to go back to a point before the big crash when everything still worked. Well, here is my Restore Point Solution for our sputtering credit market. The Restore Point Solution is based on four suppositions.


One. The economy is dead in the water because the middle class lost their largest asset--their house.

Two. The economy worked before the mortgage crash broke the housing market.

Three. The mortgage crash broke the back of housing because it wiped out the basics of lending.

Four. If we fix the broken mechanism, then the housing market will return and the economy will start moving again. This will work because the housing market worked before. Not unlike a restore point on a computer, we go back to when the economy worked before.

The Restore Point Solution

One. every second mortgage by law has to be subordinated regardless of Loan to Value ratios if the borrower is credit worthy. Why this? Because the second mortgages are bricks on the first loans. They are strangling the primary mortgages because the banks have not adjusted CLTV Combined loan to value requirements. This is stopping millions of people from refinancing who are credit worthy. Refinancing is the way the middle class clears the board. It is the way they pay down debt, send kids to college, buy cars, do home improvements, buy boats, motorcycles, appliances, give themselves breathing room to catch up. Refinancing is critical to the middle class because it reduces their payments and gives them cash flow. It gives them what the rich have with their reserves, an emergency fund.

Two. You allow credit worthy people to refinance regardless of Loan to Value. One in four mortgages are under water. Again, high combined loan to value ratios are killing loans. People with eight hundred FICO scores are not being allowed to refinance because their homes are upside down. This is wrong. These people will stay in their homes if allowed to go to a lower rate. This is squeezing off the credit market for the middle class homeowner who has done everything right. Tying a loan to an asset that has depreciated due to extraordinary circumstances is bad banking. You must get the money moving around again. This would ignite a boom in refinancing. A literal boom of cash would be unleashed.

Three. Allow people to take money out of their homes and tie it to fifty percent of pre crash levels. In other words, we give people equity again in their homes. This would allow people who truly have equity but because of the extraordinary downward pressure of foreclosures it has artificially pushed the value of their homes down. This would free up millions of dollars and inject it back into the economy. Fifty percent of pre cash levels would give the banks protection.

Four. Credit Amnesty. Millions of people who had perfect credit have been wiped out by the Crash. They were good payers and never had a late. Now because of extraordinary circumstances their credit scores have fallen and they can no longer enter the credit market. This is wrong. The Crash is as much a catastrophe as 9/11 in that it was not the fault of the people. The middle class had no hand in the terrible decisions of the banks. They were the victims. And the victims need to have credit amnesty. If people had good credit before the crash then they should be forgiven and allowed to re enter the credit market. You can not have an economy when only one third of the people can participate.

Five. A permanent buyer credit of ten thousand dollars. Not first time buyer credit, but any buyer credit that will come off their taxes. This will jump start buying again. But it must be permanent until the housing market returns to boom levels. Then it can be stopped. The pump must be primed to get the machine rolling again. This will address the housing market wiped out by the crash.

Ok. That's it. Now, all we have to do is go and set that restore point on the computer. Let's see what button does that....

Bestselling author William Elliott Hazelgrove is the Hemingway writer in residence for the Ernest Hemingway Foundation. He has written four novels, reviews and features for USA TODAY and been the subject of stories in the NY Times, LA Times, Chicago Tribune, USA Today, and NPR'S All Things Considered. His forthcoming novel is Rocket Man. More information can be gathered at
http://www.billhazelgrove.com/

The Dirty Little Secret of the Banks

Maybe you heard that another seven million homes will go into foreclosure in the next two years. Maybe you heard that the average salary at Goldman Sachs is now seven hundred thousand dollars. That is the average. Maybe you have heard that loans don't go though and the promised loan modifications have taken place for only a handful of people (something like twenty thousand loans were modified.)

Maybe you heard that appraisals are routinely cut to the point where the loans are rejected or that credit card rates are skyrocketing and the banks are loading up fees on checking accounts. Maybe you heard that the new Johnny Depp movie is very popular because people are identifying with John Dillinger against the banks. There is a reason for all this: the banks have decided the middle class is a bad bet. And they really don't want to lend money anymore.

I have taught, sold real estate, waitered, worked construction, worked in a bakery and brokered a few loans during my long tenure as a writer. During the boom you put the loan in and generally they went through. I stepped out of the part time brokering when my book came out. Times being what they are, I put my license with another firm this year and put in a few loans. Every one came back denied.

Why? Every appraisal was slashed by the banks. Every income was questioned. Every Fico Score did not measure up. These were all people with stellar credit and good income. Their homes were in the Chicago land area. But all these people were denied. I put in a few more loans but they never made the cut because of the amount of points I would have to charge just to put the loans through. I realized then that the whole system was set up for one thing now--to reject ninety percent of the loans. As another broker told me, "The banks don't want loans. They don't want to lend anymore to the middle class."

This is the dirty little secret. The banks have received their TARP money. They are fat and sassy once again. But none of that taxpayer money is trickling down because the banks simply do not want to lend anymore. Not to the average American. Sure. If you have an eight hundred Fico. If your debt to income ratio is 24/32. If your loan to value on your house is 50 percent and you have a fat 401k or bank account (six months reserves PITI) then you might get a loan. Might. But effectively the banks have set parameters that wash out ninety percent of the people.

If you have dealt with the banks then you know what I am saying. They are not modifying loans. They are not trying to work with people. They are simply foreclosing and selling the homes on the short sale market. They are giving lip service to the Obama administration, but they are essentially zombie banks--institutions that have been propped up by the government,but are not fulfilling their mandate to lend money to ease the credit market. The credit market is still shut off and there is no credit for the middle class.

Brokers and people who work in the banking industry all know this. Applications are still taken. People go through the drill, but you know the loan will not go though. It is all for show. The system is now set up to keep people out of the lending market. The very people who created this mess are ensuring they will have enough money to stay afloat and that means keeping it for themselves.

The talk on the street is that the only loans going through are government loans--FHA. These are insured loans by the government. The only person lending now is Uncle Sam, but the bottom line is that until you get money back into the hands of the middle class then this recession will only get worse. You would think the banks would know this...or maybe they just don't care. Looks like Johnny Dillinger is about to have a comeback.

http://www.billhazelgrove.com/

The Coal

The problem with the stimulus bill is there is nothing in there for coal. Steam engines need coal. Big sleek ships and trains and even cars once upon a time ran on steam. You didn't really care about the men in the bowels of the ship shoveling all that coal into the boilers because you couldn't see them. You were far above eating your dinner or enjoying a cigar in the bar or lounging topside while the men sweated down below. So when the ship pulled into dock they loaded it up with food, champagne, caviar, fruit, cigars, wine, all the necessities for life and then tons and tons of coal. Because the ship's captain and everyone else knew that without coal the rest of the food, booze and cigars didn't matter much. Seems like there is one thing missing on the good ship's Obama's manifest for the stimulus plan--COAL. Middle class people are the coal of the economy lest you forget this go into Home Depot or Menards of Best Buy. There are no people. The employees outnumber the customers two to one. There are mountains of inventory and one cannot help wonder who is carrying the cost of all that inventory. So the steam engine has stopped. We know from our oligarchy who has taken all the coal. They are still in Washington and on Wall Street laughing their asses off that the American public bought into Tarp. See the one page article in the New York Times by Wells Fargo explaining why employee junkets are still necessary for the great work their employees do. The masters of the ship are tweaked someone would mess with their cigars and fine champagne. But even as the gilded glide far above us top deck, they too our a little worried that maybe the reluctance to order in coal might bring the good ship Lollipop to a halt. So how do we get our coal bins replenished? Bite the bullet and bypass the banks and make a national bank and start lending. Or...shock..shock...give money directly to the people. Not six hundred dollars, thousands. Prime the pump directly. It is interesting that the great populist nation is quite willing to take thousands of dollars in tax money, but recoils at the thought of giving it back. If income tax was never intended to be a permanent institution, let's make good now and give back some of the money. Nebulous promises of jobs will not replace the directness of giving credit to the middle class. Infrastructure jobs will put people back to work, but how many, how soon, remains to be seen. Our bins have been empty a while now and a bold President needs to take bold steps. Throw out the play book. Don't even look for precedent. Do the bold thing and put coal into the boiler now. The hard fact is you cannot operate a ship without coal, providing only for first class passengers. You really need some fuel.

http://www.billhazelgrove.com