For example, money is needed to do the simplest things such as making our hair, washing our clothes, caring for our children, feeding our families and so on. The expensive things such as traveling abroad for one or two weeks holiday, driving the best cars, flying in first class airplanes, and so on are exclusively the preserve of the rich. No matter how low you may want to live, you need a lot of money to survive in today’s world.

In view of the above assertion, many people have turned themselves to slaves of money. The need to make money through hard work has made many people work from morning till night, some are doing more than two different jobs everyday in other to increase their earnings. This may be good to start with, especially when you are still young, but careful planning must be in place that will make you a master of money. It is not a good arrangement to work perpetually for money, the better arrangement is to set the stage for money to begin to work for you to make more money. When the stage is set, your money becomes your slave and start working for you to make more money. As more money is made by your slaves (money), you recruit more slave (money) to work for you, earning much more in the process.

How do turn you money to become your instant slave to commence a comprehensive work of making money for you? It is nothing difficult, all you need to do is to first start to invest in businesses that are sure to produce good dividends over a period of time. Such investment must be carefully planned, ask questions from those who knows. Please do your home work before any amount of money is invested in any business deal.

There are a lot of such investment opportunities both online and offline, it is your responsibility to discover the one that best soothe your need and time. Whichever one you decide on must be started immediately, so that your slave can begin to earn you money immediately turning you from being a slave of money to a master of money within a few months or years time.

Pastor Adenuga is the Senior pastor of Success Dimension Church Ibadan, he is a man with the passion to help people all around the world to become the best they were created to be in life. Get motivated by him through his articles by visiting www.successgalore.blogspot.com or you can get your own copy of the forex brilliance or robot at his website at http://forexbrillance.cz.cc

Post from: AmacamA

Slave or Master of Money?

This is really what this media circus is about. True, the governments in the US and UK are talking a big game of regulatory reform but are actually not doing much in terms of real legislation. Instead, they’re exposing to the public some of the double dealing that these ‘professionals’ engage in. It is ironic that the very same public that were being sold “shitty” mortgages (these words were used by a Goldman employee in emails) by the bank, are now betting on them by buying more shares in the bank. There is no morality in finance, it seems – just the brutal bottom line (cue images of a shellac-haired Michael Douglas in Wall Street speaking on a cell phone the size of a cadillac).

When Senator Carl Levin directed an accusation that it was morally reprehensible to knowingly make money selling the public lame mortgages and then betting against them, Blankfein smoothly replied, “What clients or customers are buying is they are buying an exposure.” It seems this very same exposure was coming back to the bank itself, and was oddly helping their cause in mending the wounds that Wall Street has imposed upon Main Street. Or has it? Stay tuned for more action – you know it’s going to come.

William Feins is a freelance journalist currently living in London; He is the main contributor for the Euro Cheddar Blog.

Post from: AmacamA

The Goldman Sachs Circus

Typically, a mortgage note goes through several iterations of sale to different mortgage lenders, which makes it difficult to produce original loan documentation. When lenders begin foreclosing on homeowners in bankruptcy, the original note is often not available.

MERS is a program that was initiated by several lenders over 20 years ago to simplify the complicated mortgage process. The system is designed to track mortgages and any associated sale of the note via a central database. Over 60 million mortgages are currently monitored by the program. Lenders who are members are represented by MERS throughout the foreclosure process.

Although the bankruptcy judge’s ruling presents a roadblock for lenders in the foreclosure process, it is not the first time MERS was challenged in court. The same ruling was handed down in a Florida court; however, the company eventually won on appeal.

For homeowners who owe more than their home is worth, or are unable to pay their mortgage payments, the ruling may only delay proceedings for about a month or more. In attempts to further assist homeowners in default on their mortgage, a Nevada state representative introduced legislation to allow homeowners in financial hardship to ask for arbitration in their mortgage default process. This would overstep service providers like MERS, and require mortgage lenders to be involved, instead.

Even though it was handed down in Nevada, bankruptcy attorneys in other states have voiced appreciation in regards to the ruling. One noted Houston attorney stated that the new law could have a nationwide impact on the ability of lenders to enforce mortgage loans. In addition, it throws some negotiating leverage onto the playing field that was not available before for homeowners in foreclosure going through bankruptcy.

A deluge of complaints have been filed against service providers in regards to aggravating the excessive number of foreclosures initiated in the past two-and-a-half years. On the other hand, MERS argues that its services enable a broader range of home lending options for homebuyers.

The program maintains current mortgage information and ownership, and avoids the astronomical millions associated with recording fees, along with the associated paperwork. MERS officials noted verbiage from one Florida court decision that stated the program was “innovative.”

Will the decision hold up? Regardless, as in the Florida case, MERS immediately appealed the judge’s decision.

The bigger question, however, is whether the ruling will catch fire in other states. Also, it will be interesting to see if the Nevada statesman’s proposed bill will be cause for pause for legislation in other states across the Union.

With all the twists and turns we’re seeing in the courts of late, anything could happen.

About the Author

Ki’s company is located in Central Austin. He maintains a website allowing buyers to search for homes in the Austin MLS. He has worked with Austin real estate for almost 10 years. His site has information and graphs on historical interest rates.

Post from: AmacamA

U.S. Bankruptcy Judge’s Ruling Could Change Foreclosure Laws Nationwide

It may be a surprise to many but the “post-meltdown” banking boards still bear a uncanny resemblance to the pre-meltdown ones. Little has changed. There have been NO real adjustments to bankers’ remuneration packages. OK, there have been some grand gestures from some very rich bankers – usually immediately following a half-hearted complaint or exposé by the media. PLUS the banking industry has succeeded in persuading everyone that it really was not their fault but that they were victims of a “Global Economic Downturn”. (Every Treasury Official’s favourite phrase)

The fact is that senior bankers did not make costly mistakes because they were either evil or greedy. They made mistakes because of crass incompetence.

They did not (and still do not) understand what they were doing.

In management there are only two questions to ask if an individual under-performs or performs badly:

Who hired him? Who managed him?

As far as bank Chief Executives are concerned, the buck stops with the Board. They hired and they should have managed. If they hired the wrong person, they should take responsibility . If they hired the right person and then did not manage, then they should all be standing shoulder-to-shoulder in the dock with their protégés.

Question: Would you hire a blacksmith to perform plastic surgery? Would you hire a bus driver to build a rocket?

One of the iconic moments of the whole banking fiasco was he sight of Fred the Shred, Andy (Boots) Hornby and their respective chairmen sitting like a row of fairground ducks in front of the Treasury Select Committee.

These “bankers” who were put through the wringer, Nuremberg-style were an ASDA-trained MBA, a Media man, an Accountant and a Chemist.

What the hell do you expect when you hire individuals who are definitely Not Fit for Purpose? And it is still happening.

Current legislation decrees that those within Financial Services who come into contact with the public have to show a degree of financial competence by studying and passing examinations. They are then registered with the Financial Services Authority.

OK, some of the “examinations” are a bit Janet and John but they do serve a useful purpose.

However, it now appears that those heading-up the Banks continue to be less qualified than those they manage.

Recently, the Chief Executive of the FSA, Hector Sants, tightened his FSA “cilice” yet again by admitting that they (the regulators) had “screwed-up” (his words). Yes they have screwed-up.

Mr Sants had no choice but to own up because it was so blindingly obvious that the gross incompetence of the bank boardrooms has been compounded by the headless-chicken negligence of the FSA. The FSA spends about £400million per year yet it still does not have the manpower experienced or qualified enough to undertand and take-on the high-level machinations of our banks.

That is why many of us are paying 20-30% on our Credit Card balance and Overdraft rates bear an uncanny similarity to those before the Bank Base Rate fell to 0.5%.

If you think of money as a commodity, you may understand:

If you bought five pounds of apples and paid £5, and then a few weeks later, the greengrocer contacted you and said that you owed him another £2 because the price of apples had gone up, you would probably tell him to get lost and you would possibly complain to the Apple Regulator.

Yet the banks will sell you money at certain rate and then keep adding charges at will. The ONLY thing that they have to do is to give you a bit warning. There’s no point in complaining to them and there is very little point in complaining to the regulator (FSA) becuse it can do ABSOLUTELY NOTHNG because the FSA does not have the power to give us, the consumers any real support whatsoever.

For most of our financial problems, the FSA is at best, cosmetic.

The FSA was designed to make sure that when Mrs Smith signed-up for her pension plan, all the boxes were ticked and she was happy with her financial advisor. The FSA is very good at sending its representatives to rifle through the filing cabinets of financial advisors and writing reports. That is a very long way from understanding credit derivatives and the forensic accounting skills needed to understand “written in smoke” bank balance sheets and the Masonic-like relationships and code of silence at the highest levels of the banking industry.

The so-called Tripartite system of regulation, which consists of the FSA, the Treasury and the Bank of England is just what the banks need. In the confusion, they are again getting away with financial murder. Murder of the Economy through not lending the correct amounts at the correct interest rates to the right people.

Make no mistake, the British economy as well as the banking system are currently doing no more than treading water. The politicians are attempting to soothe us with craftily-honed platitudes and promises of imminent economic sunshine.

Never has it been clearer that you get what you (over)pay for.

Post from: AmacamA

Naughtiness or Incompetence?

It’s really not your fault. But, once you know this, it’s your responsibility to change and reprogram your thinking and belief system. You owe it to yourself. Here’s a major test – think back as far as you can to your earliest memories about money. What springs to mind? What was the situation?

What did you hear said about money? What were the messages you received about money? How did you ‘feel’? What you believe about Money is how you see the world and you can determine the experiences you have with it. Like a self-fulfilling prophecy, your beliefs around money will result in what you experience.

Your beliefs may ‘feel’ true and real for you, but it’s not necessarily the truth or fact in reality.

Here’s another test – If money is not showing up, it’s a reflection of what’s going on in your ‘inner’ world – how you see yourself, your own self worth. It means you need to do some work on your ‘inner’ world.

If You Don’t Go Within, You Go Without…

Money is a great teacher and an insightful coach about YOU – if you will listen closely and learn, and use the experience to shift yourself in your relationship with money.

There are many erroneous beliefs about money – one of them being:

There’s Not Enough For All Of Us

This belief is based in the ‘scarcity’ mentality or ‘poverty’ consciousness. Resources are scarce and in limited supply, and you have to scramble over each other in ‘dog-eat-dog’ fashion and compete to get those limited resources.

The truth is that money is just energy, an exchange for value.

If you make the mental shift that money is limitless, that it can be invented, created and generated on demand, in line with the value you provide, it will open up all sorts of possibilities. So it’s only your beliefs, imagination and creativity that limit you.

For more, have a look at this web site and learn from a person that made millions on line. Turn his on-line eazi to listen to videos. You will find out how simple it is to earn that extra money you have been looking for. http://www.easidollars.com

Regards

Sam Townson

Author and Business Mentor on Finance

Article Source: http://EzineArticles.com/?expert=Sam_Townson

Post from: AmacamA

Your Beliefs About Money

Many people, I would say 90% of people, don’t ever look further that what’s in front of them. Now with that said, read the rest of my article. Did you know that 75 of the wealthiest people ever born going back to Cleopatra, 14 men out of that same group, (20%) were born within 10 years of each other in the US? The first and second on the list were Rockefeller & Carnegie. So what did this group of 14 men have in common?

Between the years of 1860 and 1870, the US went through one of the greatest transformations in history. This is when the rail roads where build, and when wall street was build and the economies of the time where tarring down. They were being rebuilt from the ground up. So everything that people knew, from pilgrims to farmers was being shifted into what became the new wealth of the world. The problem is, it’s hard to see something like this emerging when we don’t know what will change the current us economy.

Think about what happening for a second. Number one, the current economy has monetary policies, and special interest projects that are making the rich richer and everyone else poorer. In turn, because of the damaging fiscal policies of our government, the value of the dollar is dropping, and the future of our country seems to have a different theme. The world will change. Number 2, the exact same breakdown in history as I talked about before is happening right now with the internet and the information age. It’s hard to grasp this concept if you have the wrong impression, so look at the elements of change in society rather. How much different are things now, then they were a mere 40 years ago? The world will change very quickly this time.

About the Author

My name is Michael Fritz, I am the Creator of www.MichaelFritz.Net I come from a simple background, just like you. I have a clear focus on the future and I know exactly where I am headed, do you? My Facebook Profile

Post from: AmacamA

The Current Us Economy & The Changing World

No matter how much we try to deny it, much of our feelings of security are directly related to our finances.  We live in a capitalistic society.  It has its advantages, and it has its disadvantages.  Idealistically, we’d like to believe that if we work for a set number of years, we should be entitled to not worry about health care, living conditions, and assorted comforts.  We call that “planning for retirement” or our little “nest egg.”  While all of us give lip service to the idea that financial planning is a good thing, too few of us do anything about it.  As with many of our difficulties, denial and avoidance contribute to our problems.  We tend to think of them only in time of need.  However, especially with regard to financial planning “an ounce of prevention is worth a pound of cure.”

Imagine how much stress would be lifted off of us if we worked because we wanted to rather than because we had to.  Imagine never having to worry about what was going to happen to you because whatever your needs, there were funds to address them.  Psychologically speaking, whether we like it or not, poor financial planning causes a huge amount of stress on us, and we all are aware of the negative effects of stress.  Statistics show that among baby boomers, only about one in four has adequate funds for retirement, and recent events have resulted in a severe curtailment of even those funds.  People just don’t want to face the reality of the situation.  But while not addressing it avoids the short-term discomfort, it geometrically increases the long-term discomfort and hits us when we may no longer have resources or health to do anything about it.  A good portion of depressive feelings in the elderly are tied to finances.

Money may not be able to buy happiness all the time, but money, financial security, a nest egg, or whatever else you would like to call it definitely reduces stress.  Tax time always makes us take a close look at our finances.  It’s like looking in a financial mirror.  But now we are forced to look at our finances, or lack thereof, on a daily basis.  There is a fear in the air with which most of us are not familiar.   If we don’t like what we see, some of us will look and blame the mirror, some will look and deny the reflection, and a few of us will not like what we see and do something about it.  The choice is yours, and your mental health depends upon it.  Into which category will you fall?  It doesn’t take much effort, but it does take some.  However, it will be effort very well spent … and that IS a pun intended.

Copyright 2009 Yellen & Associates All rights reserved.

Dr. Andrew Yellen is a parent, former educator, and clinical and sports psychologist in private practice. He is also the co-founder along with his wife Heidi Yellen, M.A., B.C.E.T., of Yellen & Associates ( http://www.yellenandassociates.com), a southern California firm providing psychological, educational, speech, and language services.

Currently pioneering advances in the field of Brain Electrical Activity Mapping, Dr. Yellen has augmented the accuracy of psychological assessments by offering the latest technological advances of Digital EEG Spectral Analysis (DESA) to schools, rehab clinics, attorneys, sports organizations, and our injured veterans.

Dr. Yellen has appeared nationally on television as well as giving commentary on local television and radio stations. He is the author of The Art of Perfect Parenting and Other Absurd Ideas and co-author of Understanding the Learning Disabled Athlete and Social Facilitation in Action. His books are available for purchase through his website. For further information, personal consultations or speaking engagements, he can be reached at (818) 360-3078

Article Source: http://EzineArticles.com/?expert=Andrew_Yellen,_Ph.D.

Post from: AmacamA

Psychology and Financial Security

The matter that I would like to discuss here concerns the present financial meltdown. Let us start off with a short summary on the cause of the financial crisis. In August 2002, a macroeconomist discovered a housing bubble. Dean Baker noted that the prices of houses from 1995 had a significant increase above inflation-based increases. His claim was supported by a research conducted by Robert Shiller, an economist at Yale University.

At the same time, financial corporations like Fannie Mae were increasing mortgage loans, even making credit requirements easier on loans bought from lenders. Moreover, due to the low interest rates, investors and banks borrowed large amounts of money that they could only return if house prices did not drop. Unfortunately, the building boom caused the supply of houses to increase tremendously, leading to a fall in prices. As a result, people who made an investment in their houses did not have the ability to return their loans and financial corporations realised they did not have enough funds. The collapse of several financial corporations ensued, such as Lehman Brothers and Bear Stearns, and takeovers, like those of Fannie Mae and Freddie Mac. International trade plunged, and goods, currency values and stock markets became volatile. Hence, the global economy went into a financial crisis.

At this point, I would like to address an idea that has been bothering me: Why many senior managers such as the those of failed financial corporations like AIG, Bear Stearns, Lehman Brothers, Fannie Mae and Freddie Mac did not respond to the warnings of investors and economists like Warren Buffet and Dean Baker, about the trouble financial corporations were entering and the prediction of a resulting financial crisis. These managers continued over-leveraging, increasing risky mortgage loans, opposing mark-to-market accounting regulation, laws on credit default swaps, greater transparency for hedge funds, and insisting that mortgage bankers obtain financial statements before granting mortgages. Why didn’t any manager speak up to propose that the financial corporations stop their practices and rescue the system? Was it really because they did not expect the financial system to collapse?

The testimony of Lehman CEO Richard Fuld at Capitol Hill gives us some clue. On 7 October 2008, the Washington Post reported that Fuld admitted to no mistakes during his testimony. Instead, he blamed investors for his bank’s collapse. The action of pushing blame to others suggests that Fuld wanted to take no responsibility for the failure of Lehman Brothers.

In addition, news has spread concerning the large payouts the senior managers of failed financial corporations such as AIG CEO Martin Sullivan, Freddie Mac CEO Richard Syron and Lehman CEO Richard Fuld have received even though their financial corporations were not performing well. This makes one suspicious of the motivations of these managers – did they really have the full interests of their financial corporations at heart?

Thus, the claim that the senior managers of failed financial corporations did not believe the financial system could collapse is weak. That the senior managers of these financial corporations were not motivated by the performance of their financial corporations, but by other factors, such as opportunistic behaviour and greed would be a stronger argument. They were satisfied as long as they received their salary and had no issues with the stakeholders.

This argument would also more or less answer why no senior manager spoke up to persuade the financial corporations to halt bad practices and rescue the financial system. Even so, why then, did nobody from the other financial corporations do so? Being a third party observing the situation, it would be near impossible to ascertain the cause of their failure to do so. On the other hand, I have some suggestions:

1) They had similar motivations to the senior managers of failed financial corporations, only that their financial corporations have yet to collapse. 2) They only cared about the performance of their own corporations, and not the financial system as a whole. 3) They believe their authorities were restricted only to within their own financial corporations and did not feel they had the ability to put an end to the lousy financial practices across the financial system.

Either way, the reason that nobody came out to rescue the financial system suggests that there was very little real leadership in the top management levels of the financial corporations. They were either greedy , selfish, or simply lacked confidence. As such, this allows me to come to a conclusion that the scarcity of leadership from the senior managers of the financial corporations was the basic reason why nobody came out to prevent the financial crisis even with investors’ and analysts’ repeated reminders of the poor financial practices in the financial corporations and the resulting financial crisis. This brings me to another question: How did the senior managers of financial corporations rise to their positions if they were not good leaders?

After pondering for awhile, I reasoned that this was either because they had strong networks, they were great bootlickers, or that senior management positions simply were not the same as leadership positions. However, it is again not possible to prove whether the senior managers had strong networks or extra-ordinary bootlicking skills. On the other hand, the reason of senior management positions not equating to leadership positions is worth pondering.

I thought up some differences between leaders and managers. To begin, managers want to continue the stability of the current climate while leaders want to improve through change. Also, managers have short-term horizons compared to leaders, whose horizons are longer-term. While managers are mainly reactive to situations, leaders are proactive. Furthermore, managers do not like taking blame, while leaders do not mind doing so. As such, the reason why the senior managers of financial corporations lacked leadership and did not have the ability to change the financial climate in the face of a resulting financial meltdown was most likely because they were merely managers and not leaders.

Thanks for visiting my site on the current Financial Crisis.

About the Author

Andy Lee

Post from: AmacamA

Financial Crisis

Well, for one, the competitiveness of the precious metals influences interest rates for other methods of spending, which typically are preferred to be kept low. There are many investigations and reports that are being made about the use and manipulation of gold and silver in the economy, which makes it hard to know which one is best trusted. However, you must at least understand that the gold and silver prices, supply, and other elements are in fact being controlled by the government.

You can see a clear example of this manipulation in the increasing demand for gold and silver as other investments become less attractive. More and more people are demanding gold, and somehow less is being given out, as the world governments hold out for the big gold rush that appears to be looming in the future. Add to that the fact that the GATA (Gold Anti-Trust Action) committee can’t get the Fed to give up information about the precious metals and the situation that is currently going on with the U.S. gold reserve. Obviously, this is in part due to privacy laws and such, but is still further proof that the government is tugging on the strings of the precious metals markets every single day.

If people were to buy large quantities of gold and stop using currencies for commerce, even on a small scale, drastic things could happen. The collapse of national currencies could have a devastating effect on the world economy and governments will try as hard as they can to keep that from happening. However, with the current economic situation in the United States and abroad, the Federal Reserve and other banking an money controlling entities may not be able to keep a tight reign on the gold and precious metals markets. They very well may set their own level according to market supply, demand and who is investing.

It seems that the state of things is nobody’s business, except for Wall Street. However, it still leaves many people wondering what the deal is with the markets in the end. Many people are concerned by the government’s lack of openness about where their money is going, where markets are being toyed with, and why they are using these markets to their advantage in every way possible.

This creates a lot of misleading answers to questions about the gold supply, the use of gold in the current economy, and even the state of the gold and silver markets and how they will play out over time. Although these markets are typically independent from other economic situations, if they are being manipulated by anyone, they cannot be depended on nearly as much as people might have thought.

However, with the state of the economy and the pace of quick change in today’s volatile markets, gold cannot be manipulated forever. The economy may eventually force the price of gold and silver through the roof as it busts through artificial price controls by the Fed. Do you want to wait until the price of gold skyrockets before you add it to your investment strategy?

Remember, you should always study the market carefully and talk to experts before embarking on any investment ventures.

Alan LeStourgeon owns a Gold Coins website where you can find articles and information on buying and investing in gold bullion and coins.

Article Source: http://EzineArticles.com/?expert=Alan_LeStourgeon

Post from: AmacamA

Are Gold and Silver Markets Being Manipulated?

To paraphrase Alan Greenspan’s remarks on March 17th, 2008, “The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War. The crisis will leave many casualties.”

How many casualties? Experts are predicting that in the next few years, between 15 and 20 million homeowners could have homes worth less than what they owe. Walking away from a bad situation may actually make sense for people who mortgages that are ‘upside down’ considering the fact that refinancing is out of the question and home equity is nonexistent.

It seems quite easy to point fingers at greedy Wall Street titans for causing the sub-prime mortgage crises. They after all, put together the deals that allowed banks to underwrite mortgages and then offload these liabilities to investors. What many fail to realize is that there is no shortage of blame to go around from homeowners buying more home than they could afford to real estate agents looking for more commission dollars. Mortgage brokers and bankers, the banks themselves, ratings agencies such as Moody’s and Standard & Poor’s, Wall Street, the Fed and last but certainly not least, the Federal Government.

Let’s start with the homeowners–the people who are now in the process or soon to enter the process, of losing their homes. Some of these people had never before owned a home and as such, may not have been prepared for the costs associated with homeownership. Basic financial literacy is sorely lacking in this country despite there being no shortage of budgeting and tracking programs readily available such as Quicken and Microsoft Money. The lack of financial literacy does not absolve these buyers of their responsibility. Every borrower receives a truth in lending disclosure statement. Here is a portion of what the act covers:

The purpose of TILA (Truth In Lending Act) is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer’s principal dwelling.

Much of the subprime mortgage crisis can be traced directly back to variable-rate mortgages. As is clearly stated above, “TILA does not regulate the charge that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumers dwelling.” It also clearly states that TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling. One has to wonder whether or not these homeowners:

1. Bothered to read the truth in lending act disclosure at all.

2. Understood what the truth in lending act disclosure meant.

3. Chose to ignore the information printed clearly the truth in lending act disclosure.

A number of months ago, just as the subprime mortgage crisis was beginning to unfold, The New York Daily News ran an article about a family in New York City, who had bought a home and were now faced with the prospect of foreclosure. The article was sympathetic to this family, highlighting the fact that they’re living the American dream and that this dream was about to come to an end. What I found to be distressing was the fact that clearly visible in the photo that accompanied this sympathetic article was a very expensive flat screen television hanging on the wall. Perhaps I’m naïve, but I can assure you that if I were faced with the prospect of losing my home and having my family put out on the street, there is absolutely no way that I would still have that expensive television hanging on my wall. It would have been one of the first things to be sold and some financial relief would be found by jettisoning what I’m sure was the expensive cable bill.

Clearly the public needs easy access to financial literacy courses. Too bad we don’t see the need to make this a mandatory course of study in our educational system.

Mortgage bankers and brokers have in the last four or five years been raking in cash by the bucket load in the form of commissions paid when mortgages they’ve originated, close. Many of these people have not needed to do much in the way of prospecting. Instead, their phones have run off the hook as people have jumped on the homeownership and refinancing and take out extra cash bandwagon, despite their ability to pay for their home. No-document loans were readily available without the borrower having to produce documentation that backed up their income. Clearly this practice can and indeed has, lead to substandard loan underwriting processes. Were some of these mortgage bankers and brokers dishonest? Sure. Were all of them dishonest? I think not. To have a massive nationwide conspiracy, where thousands and thousands of people involved in the mortgage banking and mortgage brokering profession got together to create this situation is simply not feasible. Yes, some of the blame does belong with those in the mortgage industry, but they were simply a small cog in the huge machine that created this mess.

Let’s discuss real estate agents. In 2007, we bought a home, and also sold a home. The agent we used to purchase our home was absolutely fantastic. In our opinion, she went above and beyond to make our deal happen. She answered every phone call, followed up on every concern and was the epitome of professionalism. We consider this individual to be a friend, and we have sent referrals her way that have resulted in her earning additional commissions. We will continue to recommend her to all who ask or mention that they’d like to buy or sell a home in our area.

The real estate agent, we used to sell our home, could not have been more different. We got our old home ready to sell prior to closing on our new home. We decided to list it as “For Sale by Owner.” In the event that we didn’t sell this home on our own, it was our intention to list it with an agent as soon as we had closed on the purchase our new home. Literally, from the day we put the sign in front of our home and listed it on a “For Sale by Owner” website we were inundated with phone calls from real estate agents. We were told many lies and were constantly harassed; although we had already made it quite clear to every agent who called, and there were more to 60 who did; that we were willing to pay half the commission-the same as they would have received had they sold another agent’s listing. We also told every agent that called that we had already lined up an agent to sell our home in the event that we chose to no longer sell it ourselves. Our deadline was the closing date of our new home purchase. We did have an interested buyer who shortly after our closing date decided to keep looking so we listed our home with a local agent so that we could concentrate on getting our new home ready for our moving date at the end of the school year. This agent showed our home a maximum of two times and got an offer which we accepted. We ended up getting $1,000 less than we had wanted in a declining Real Estate market. The agents who had called many times to harass us called our listing agent on a number of occasions and he lied telling them that the house was under contract when in fact it wasn’t at that time-clearly a breach of our agent’s fiduciary duty. Quite frankly an ethical agent would have continued to show our home until closing in the event that the deal fell through.

But wait, there’s more. Our agent also acted as the buyer’s mortgage broker. At the closing table, we learned that he had signed documents from the buyer stating that he (our agent) represented them and we had signed documents stating that he represented us. We also learned that the buyer had effectively put down approximately 2-3% of the purchase price when financed closing costs were factored into the equation. Their first mortgage had what we thought was a high fixed rate and their second mortgage came with a rate in excess of 8.5%. Because the closing happened in August, literally in the midst of the first wave of the meltdown, if they didn’t close on the day they did (August 31st, 2007), Citibank wasn’t going to extend their rate. When my wife & I have bought houses in the past, it had always been a very happy day. These people looked absolutely shell-shocked at the closing table. I’m not convinced that they knew just how much their monthly payment was going to be until closing day. We knew down to the penny well in advance having budgeted and planned everything on a spreadsheet. Were these people stupid or just inexperienced and mislead by a greedy combination of real estate agent & mortgage broker? I’m extremely confident that they are intelligent people but inexperienced and taken advantage of by an unscrupulous agent.

The banks are also culpable. Prior to bank deregulation, Savings and Loans provided mortgages to home buyers and kept these loans on their books. Non-performing loans had a negative effect on the S&L’s profitability which of course caused tighter lending guidelines such as job stability and decent down payments in order for prospective home buyers to be approved for a mortgage. Way back then, a home buyer had to actually save up enough money for a down payment 10 or even 20% before a bank would ever consider underwriting a mortgage. The checks & balances kept banks solvent and borrowers responsible. Although this approach worked, some cried foul stating that the regulated system was racist and discriminatory-and there certainly was some truth to this. Skipping forward to the present, banks made a bundle on mortgages over the past five or six years. For the most part, they allowed their underwriting criteria to be stretched so far out of alignment that almost anyone could and indeed did, qualify for a mortgage despite their ability to pay. Some folks even applied for and received mortgages for more than the property was worth. Sometimes for as much as 25% more than their property was worth!

Under the prior system, 125% mortgages would not have been possible because of course these loans were held on the banks’ books and could have led to losses that would have had to have been absorbed directly by the bank.

So what went wrong? Under the current system, these loans were sold to the big Wall Street investment firms who repackaged them as collateralized mortgage obligations (CMO’s), Mortgage Backed Securities (MBS’s) and other similar acronyms. These instruments were then sent to the ratings agencies for their blessing and more importantly a letter rating. Many of these structured finance deals receive AAA ratings-the highest ratings available meaning that in theory, these instruments were least likely to default. How does one create a ‘triple A’ or AAA rated financial instrument out of sub-prime mortgages? Herein lies the magic. These Asset Backed Securities (ABS) are made up of different tranches or slices, each carrying a different risk and reward level. The first dollar of principle and interest is applied to the securities with the highest rating, and the first dollar of loss is applied to the tranche with the lowest ratings. The lower slices are designed to provide a security blanket that in theory protects the higher-rated securities. The investment banks that package or ‘structure’ these securities in order to earn fat fees when they sell them to investors are the same entities that pay the ratings agencies to rate these instruments. Clearly the possibility for conflict of interest is present. If investors and not the investment banks that stand to rake in millions in fees were to pay for the rating, the potential for this conflict of interest would be negated. Furthermore, the investment banks have a vested interest in convincing the ratings agencies of the credit worthiness of these securities.

So we’ve already pointed fingers at homeowners, some greedy, many more I suspect, naïve or uninformed, real estate agents-one out of more than 60 in my experience was a gem, mortgage brokers & bankers, banks, Wall Street and ratings agencies so who’s left? The Federal Reserve and the Government of course.

The Fed as its known is responsible of the country’s monetary policy and for supervision and regulation of banks. This is the definition of the Fed’s roles in their own words:

Monetary Policy

The Fed is best known for its role in making and carrying out the country’s monetary policy-that is, for influencing money and credit conditions in the economy in order to promote the goals of high employment, sustainable growth, and stable prices.

The long-term goal of the Fed’s monetary policy is to ensure that money and credit grow sufficiently to encourage non-inflationary economic expansion.

The Fed cannot guarantee that our economy will grow at a healthy pace, or that everyone will have a job. The attainment of these goals depends on the decisions of millions of people around the country. Decisions regarding how much to spend and how much to save, how much to invest in acquiring skills and education, how much to spend on new plant and equipment, or how many hours a week to work may be some of them.

What the Fed can do, is create an environment that is conducive to healthy economic growth. It does so by pursuing a goal of price stability-that is, by trying to prevent inflation from becoming a problem.

Inflation is defined as a sustained increase in prices over a period of time.

A stable level of prices is most conducive to maximum sustained output and employment. Also, stable prices encourage saving and, indirectly, capital formation because it prevents the erosion of asset values by unanticipated inflation.

Inflation causes many distortions in the market. Inflation:

· hurts people with fixed income-when prices rise consumers cannot buy as much as they could previously

· discourages savings

· reduces economic growth because the economy needs a certain level of savings to finance investments that boost economic growth

· makes it harder for businesses to plan-it is difficult to decide how much to produce, because businesses can’t predict the demand for their product at the higher prices they will have to charge in order to cover their costs

Bank Regulation & Supervision

The Fed is one of the several Government agencies that share responsibility for ensuring the safety and soundness of our banking system. The Fed has primary responsibility for supervising bank holding companies, financial holding companies, state-chartered banks that are members of the Federal Reserve System, and the Edge Act and agreement corporations, through which U.S. banking organizations operate abroad.

The Fed and other agencies share the responsibility of overseeing the operation of foreign banking organizations in the United States. To insure that the banking system remains competitive and operates in the public interest, the Fed considers applications by banks for mergers or to open new branches.

The passage of the Gramm-Leach-Bliley (GLB) Act in November 1999, was the culmination of a multi-decade effort to eliminate many of the restrictions on the activities of banking organizations.

Some of the main provisions of the GLB are:

· Repeals the existing limitations on the ability of banks to affiliate with securities and insurance firms

· Creates a new organizational form that allows banking organizations to carry new powers. This new entity called a “financial holding company,” (FHC) and its non-banking subsidiaries are allowed to engage in financial activities such as insurance and securities underwriting

The Fed’s enlarged role as an umbrella supervisor of FHCs is similar to its role in supervising bank holding companies. The Federal Reserve Banks will supervise and regulate the FHCs while each affiliate is still overseen by its traditional functional regulator.

The Fed has to delineate the financial relationship between a bank and other FHC affiliates. Its primary goal is to establish barriers protecting depository institutions from the problems of a failing affiliate. To do this efficiently the Fed has to ensure increased communication, cooperation, and coordination with the many supervisors of the more diversified FHCs.

The Fed has access to data on risks across the entire organization, as well as information on the firm’s management of those risks. Regulators will be in a position to evaluate and presumably act on risks that threaten the safety and soundness of the insured banks.

It would appear that the Fed has failed to curb housing inflation which played a role in this entire debacle then made matters worse and in their efforts or lack there of, to properly supervise banking institutions.

Finally the government, a.k.a. Uncle Sam, the big Kahuna 10,000 pound elephant etc. Where do we begin? How about with: ‘Where were they?’

It now appears that after millions of horses are out of the barn (some horses ran, others were foreclosed upon) the government wants to step in with a bailout to save the rest. While nobody wants to see people lose their homes, the question that must be raised is this: What about all those of us who were responsible? Those of us, who scrimped and saved up a decent down payment, bought less-house than we could afford and who live below our means? Many of us drive older cars and keep them longer. We don’t run out and buy the latest and greatest at inflated prices, we watch, wait and budget.

When the World Trade Center was attacked, families who decided not to sue received government payouts and we certainly don’t begrudge them as I’m sure that given the choice, they’d prefer to still have their loved-ones over the money. The problem, in typical government fashion is that those who were responsible and had insurance policies in place received less than those who were irresponsible and didn’t plan ahead. I’m not talking about dishwashers at Windows on the World and blue collar workers; I’m talking about executives, traders and people who should have known better.

Now our government, the same government that sat by idly watching as this bubble got bigger and bigger despite many warnings, wants to step in and bailout people who are in danger of losing their homes. There has been no talk about educating people, let’s not teach people to fish, rather, let’s give them a fish and bail them out once again at the expense of those who are responsible.

Clearly, by keeping the majority of the population financially ignorant, there is a lot of money to be made by the poverty industry.

About The Author
Richard Gandon is the Managing Director of The Financial Learning Network, dedicated low-cost online to financial literacy seminars. His ‘Understanding the Stock Market” course was made into a CD-ROM and is in use in more that 50,000 classrooms nationwide. Every year since 1998, Richard has teamed up with a fifth grade class in Georgia to teach them about the stock market online. Richard has more than 20 years of financial services industry experience including as a broker, trader, licensing trainer and managed both a sales group and Central Inquiry, a Historical Equity & Index Research group at Standard & Poor’s.

http://financiallearningnetwork.com/

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