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August 1st, 2007

CURMUDGEON’S CORNER: MORTGAGE MELTDOWNS, EXECUTIVE PAY-CUTS, FLAT TAX & PATRIOT ACTS

by Sean Jaeger

Call it subprime, call it Alt-A, call it liar’s loans, call it what you will, the giant sucking sound was the roar of Wall Street giants scooping gold up off the streets of America and making it disappear into their pockets.

The biggest profit center, maybe the only profit center for GM lately has been GMAC finance (the mortgage and car loan branch of the company). Does the name Ditech ring a bell? The big winners in the great housing boom have been the money lenders in the temple…GM, Citimortgage, Lehman Bros, Morgan Stanley and Goldman Sachs, not to mention the usual suspects in the hedge fund camp. The big losers are the people who thought they were buying a house and actually were financing the champagne and caviar lifestyles of those who have been making money on the commissions, the points, the packaging and the trading of these mortgages. You think maybe these big spenders were passing around mortgages for charity?

And this is the nightmare that just keeps on giving. Sure, a bunch of subprime mortgage predators are going bankrupt but what is that going to do for the poor schmucks who got the bait and switch mortgages, where the rate suddenly jumps while they are at the closing table, and then starts resetting in six months, or after a year or two? Two cute little money suckers are built into this. For one thing a lot of these mortgages are based on LIBOR rates. That’s the London Interbank Offered Rate which is volatile so it can ratchet rates up nicely, particularly when your friendly neighborhood mortgage vulture has nice little margins like LIBOR plus 5 or 6 per cent…which put mortgage rates right now at 11 or 12 per cent. That’s close to twice the current market rate. Go back enough years and this technique helped drive some mortgage rates up to more like 20 per cent..otherwise known as the find a tall building to jump off of rate. The way these things work for big deal investors is they borrow the money at the LIBOR rate and then loan it out at LIBOR plus 5 per cent and make beaucoup bucks while they sip their champagne on the deck of the yacht.

The second cute thing is the double whammy they put in the fine print. First, the real point of the adjustable rate is to drive up the rates to the point where they can convince the homeowner, otherwise known as the sucker, to refinance. That creates a whole new round of fees and commissions for the mortgage broker and the industry behind them. They get money, you get brokered. Then just to add to the skim scam they put in a pre-payment penalty clause. Refi really means getting a brand new mortgage to pay off the old mortgage and that pre-payment penalty means it costs tens of thousands of dollars in penalty fees for paying off the old mortgage early.

But just because the original lender went belly up doesn’t let the guy with the mortgage off the hook. No way. The subprime mortgage flipper sold the mortgage after taking out their cut, probably before the ink dried at the closing…and the new owner of the mortgage still wants to get paid.

And guess what happens to house prices when the house down the street goes into foreclosure? Tank is the word we are looking for here. So now you need a bigger down payment because your house is worth less and a bigger mortgage to make up for the fees and commission and penalties, and where does all that money come from?

SOME MODEST PROPOSALS:

First, for executive pay.

All these paid boards of directors that are supposed to be watching over corporations should set a new executive compensation policy.

Fire all executives making over $2 million a year. All of them.

Immediately.

Like they have been firing other people.

Security guards leading them out the door, no severance pay, no pension benefits, no medical insurance, no parachute of any kind. Just throw them out the door of the plane and see if they can fly. That’ll cut corporate expenses way down.

Then a couple of small tweaks in the tax laws, all based on a very simple concept. This concept is a million dollars is a unit.We don’t have to change the whole tax code, just figure a million dollars is a unit.

So if you make 10K a year or even $999,999.99 a year your taxes stay like they are now. But after you make that first million the whole system resets. That means you have to pay all those early taxes all over again, that nice little bit that FICA puts on the first hundred grand or so. Make ten million and it resets with every million. Which means the guy making ten million pays ten times as much social security as the guy making a million. Why not?

And all those nice deductions? They get prorated per million to make sure that alternative minimum tax kicks in and the multi-millionaire has to pay taxes on each and every million.

Then extend the alternative minimum tax to corporations…on shore and offshore. Just a nice flat figure so we don’t have to buy more accountants. Call it ten per cent of income…minimum… no matter how many scams.

The national debt will start going down to Clinton levels but fast. Remember Clinton? He’s the one who only tried to screw an intern, instead of a few countries.

And here’s a reminder that the Patriot Act really ought to be called the Nazi Gestapo Stasi Stalin Memorial and Restoration Act. It gives a whole new meaning to the ICEman cometh.

Did you know that Armed and dangerous Immigration and Customs Enforcement (ICE) goons are barging into houses in Easthampton looking for illegal immigrants? A family in Springs had owned their house for 7 years, which by the way means they would qualify as property owning and tax paying residents, even if they were illegal.

Thanks to the so-called Patriot Act, the ICE agents can pretty much write their own warrants and then serve them. Apparently, the biggest offense of the Latinos living in Springs was they liked to play volleyball. On the other hand the favorite sports of their neighbors seem to bitching, snitching, and generally making the lives of others miserable. Stay tuned to see if the government is going to ICE houses with half a dozen Irish bartenders in the basement. Actually, pity the poor Irish illegals. They are trapped here just as the Latinos are and many can’t even afford to get home anymore because housing prices have skyrocketed in Ireland.

It’s time for some serious de-ICEing in America. And it’s time for the guys waving flags in front of the 7-11 to go stand with the Latinos and look for a real job.

Filed Under: Commentary | Community | the Hamptons

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