The EHS Daily Journal

Derivatives Debacle

2009-07-06T11:32:38Z

EHS Daily Journal #23 - July 6, 2009

Derivatives Debacle

The collapse of AIG exposed just the tip of a world-wide derivative bubble that Uncle Sam is desperately trying to keep from bursting. If it does, the financial devastation of the sub-prime mortgage crisis will be just "a drop in the bucket" in comparison.

While financial derivative instruments are extremely complex, their essence can be understood by going to the track and making a bet on a horse. The horse goes off at a certain "odds" and you can structure your bets, and projected profits (or losses) on what you think will be the outcome of the race and how much risk you are willing to assume in accordance with your analysis of the horse's past performance and your resulting assumptions about risk. Then, perhaps, you hedge your bets - and minimize your exposure to risk - by making a bunch of "exotic" bets. The "derivatives game" is on!

One, unregulated division of AIG, for example, insured "bets" - in the billions - on whether or not borrowers (whose mortgages were securitized in pools and sold on Wall Street) would make their mortgage payments. These "bets" were made by folks like Goldman-Sachs. In fact, Goldman-Sachs was one of the parties that got "paid off on their bets" by Uncle Sam with billions of taxpayers' dollars when AIG collapsed (i.e. couldn't make good on its derivative insurance contracts with Goldman-Sachs and others).

As you might recall, this is not exactly the way that the AIG collapse was presented to the American people. After all, it wouldn't exactly be good PR to have it known that companies like Goldman-Sachs made billions of dollars in fees and profits by, literally, (a) betting on the default of hundreds of thousands of sub-prime mortgages, and then (b) getting paid off by Uncle Sam, (with taxpayer dollars) because their "bookie" (AIG) went bust. Rather, the government and banks want to focus the blame on the homeowner; even though it was known in advance (or should have been) that the sub-prime mortgage borrower would eventually default. However, by the time these defaults took place, billions of dollars had already been siphoned off in fees and profits generated through the origination, sale of mortgages on the secondary market, and through a host of speculative derivative arrangements (like AIG's insuring the return on a sub-prime mortgage portfolio).

If this makes you angry, save some of your fury.

Total worldwide derivative arrangements (of which residential mortgage derivatives are a very, very small part) are estimated by some to be on the order of $550 trillion (ten times the entire global economy of approximately $55 trillion) - and by others to be approaching a mind-boggling $1.4 quadrillion.

Oh, by the way, the entire U.S. Gross Domestic Product is less than $15 trillion and the recently sky-rocketing U.S. national debt is almost $11.5 trillion as millions of Americans are struggling to survive in a U.S. economy that is failing across the boards.

Yet there are some that believe, quite strongly, that this situation somehow sets the stage for lower taxes and economic recovery.

You be the judge.

- Ed Smith, Publisher
The EHS Letter Manual

Incarceration Costs

2009-07-03T10:15:41Z

EHS Daily Journal #22 - July 3, 2009

Incarceration Costs

The United States has approximately 5% of the world's population, but approximately 25% of the world's prisoners. In 2006, according to the Department of Justice, more than 7 million people in the U.S. were (a) in prison, (b) on probation, or (c) on parole.

The cost is absolutely staggering; no matter whose numbers you use. A conservative incarceration cost of $25,000 per inmate per year, given approximately 2.3 million prisoners, is an annual cost of $57.5 billion. Add in a host of other indirect costs (i.e. the related overall costs of crime to society) and the annual cost is, in all likelihood, in the hundreds of billions of dollars.

This situation is, literally, a ticking time-bomb no matter how you look at it.

The prisons are already over-crowded and there's no more money to build more prisons. The intense financial pressures of the current failing U.S. economy are likely to produce even more crime and we'll be throwing more and more people in jail. Instead of solving the problem, the pressure-cooker will simply get bigger and bigger.

It's a vicious cycle with no end in sight.

Maybe it's about time (if it's not already too late) to start thinking about how to actually reduce crime in the long run - and maybe we do that by making education a much bigger priority in all local, state, and federal budgets.

Maybe that's where we can get some productive and profitable results for everyone.

- Ed Smith, Publisher
The EHS Letter Manual

Mortgage Loan Modification

2009-07-02T09:49:16Z

EHS Daily Journal #21 - July 2, 2009

Mortgage Loan Modification

Preliminary reports and observations about the sum and substance of so-called mortgage loan modifications are causing some concern over the disturbing revelations.

By some reports, loan modifications were a total and absolute failure. For example, in a MarketWatch report dated December 8, 2008, Ronald D. Orol reported: "According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months, the rate was roughly 56%. After eight months, 58% of borrowers had re-defaulted." (Note: OCC is Office of Comptroller of the Currency)

If these statistics are even close to being accurate, they expose a much more serious problem than the defaults themselves.

That problem is this: This astronomical default rate suggests that these so-called "modifications" were nothing more than a temporary band-aid in nature; since any banker will tell you that such a default rate for a "new" mortgage portfolio is astronomical in nature (much worse, in fact, than the default rates which triggered the sub-prime mortgage crisis). These "re-defaults" suggests that these soon-to-default-again modifications were allowed pursuant to an ulterior motive or objective.

The bottom line is simply that it is all but impossible that these mortgage loans were modified with the intent that these same homeowners would be, thereby, put in a position to keep their homes and go on in life.

Let's just hope that these modifications were not, in fact, designed to make sure these homeowners COULD NOT keep their homes - and, perhaps, serve to show that loan modifications are not the best use the TARP funds.

It would also be interesting to see how many of the re-defaulted loan modifications were made while the "foreclosure gun" was still pointed at the borrower's head.

- Ed Smith, Publisher
The EHS Letter Manual

The Fed

2009-07-01T13:31:11Z

EHS Daily Journal #20 - July 1, 2009

The Fed

According to Wikipedia: "The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act (signed by Woodrow Wilson), it is a quasi-public and quasi-private (government entity with private components) banking system[1] that comprises (1) the presidentially appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) twelve regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the United States Department of the Treasury, each with its own nine-member board of directors; (4) numerous other private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks; and (5) various advisory councils. Since February 2006, Ben Bernanke has served as the Chairman of the Board of Governors of the Federal Reserve System. Donald Kohn is the current Vice Chairman (Term: June 2006-June 2010)."

Apparently, Fed Chairman Ben Bernanke had his feathers ruffled last Thursday when he was questioned about the support of Ron Paul's bill to audit the Fed as he responded, "My concern about the legislation is that if the GAO is auditing not only the operational aspects of the programs and the details of the programs but making judgments about our policy decisions would effectively be a takeover of policy by the Congress and a repudiation of the Federal Reserve would be highly destructive to the stability of the financial system, the Dollar and our national economic situation."

Perhaps this is the introduction to yet another U.S. financial debacle with enormous implications that is making its way to center stage as the entire world is trying to wrap its mind around just how the "derivatives bubble" got to its current size of over $500 trillion (the entire U.S. annual gross domestic product is about $15 trillion).

Maybe its got something to do with the same reasons why the Fed currently holds almost $250 billion of gold (current market value) that was once used to back U.S. currency which it shows on its balance sheet, as of March of 2009, to be an asset worth $11 billion.

Somebody ought to keep an eye on that gold.

- Ed Smith, Publisher
The EHS Letter Manual

Government Spending

2009-06-30T19:22:39Z

EHS Daily Journal #19 - June 30, 2009

Government Spending

The government spends an extraordinary amount of money. All of that money, however, can be categorized as either discretionary or mandatory expenditures.

Discretionary expenditures are those which Congress can raise, lower, eliminate, increase, or otherwise deal with in accordance with current circumstances. Mandatory expenditures include items such as Medicare, Medicaid, Social Security benefits, other entitlements, and interest on the national debt which are legally bound to be paid. Currently, more than half of the federal budget is comprised of mandatory expenditures.

With a current 2009 federal budget of $3.1 trillion with roughly $1.9 trillion in mandatory expenditures, it is no wonder why the national debt is sky-rocketing (now approaching $11.5 trillion). Given the current state of the economy, one would be hard pressed to assume that U.S. taxpayers can, realistically, contribute more than the $2.7 trillion they are being called upon to support the 2009 federal budget.

The basic, fundamental issue here is that the mandatory expenditures that have been promised by the federal government can not possibly be sustained in the future (never mind the increased discretionary costs related to all other government expenditures).

While the country was buzzing about Bernie Madoff's sentencing yesterday, Americans should understand that Uncle Sam's own "Ponzi-scheme" that is about to unravel will dwarf the devastation cause by Bernie Madoff.

The current housing and mortgage crisis is just the beginning.

- Ed Smith, Publisher
The EHS Letter Manual

Partisan Bickering

2009-06-30T19:21:00Z

EHS Daily Journal #18 - June 29, 2009

Partisan Bickering

As members of Congress continue to play the partisan "blame-game" as part of their methodology to resolve the devastating financial crisis facing America, the clock keeps ticking with no real solutions in sight.

Despite the dire urgency to find workable solutions to avoid the imminent dangers related to a host of issues (military strategy, the recession, healthcare, energy, bailouts, the housing crisis, unemployment, and much more), we turn on the TV only to hear members of Congress debating issues in terms of party allegiance and platform positions as opposed to the actual merits of a given issue.

In many instances it painfully obvious that finding common ground or a timely solution is, in fact, only a secondary priority.

The first priority, all too often, is to affirm their party's political ideology and denounce anything that comes from the other side of the aisle; no matter what it is, what it says, or what is at stake.

It seems that Congressional debates, especially Senate debates, are becoming more and more like a divorce proceeding where the parties stop trying to reach a resolution and, instead, become incensed with "getting even with each other". As a result, of course, the rest of the entire family pays the price. In this case, that family is comprised of more than 306,000,000 Americans and the entire foreign community that are (or were?) depending on the American legislative process for sound direction.

While this partisan bickering is notorious for slowing down, to a snail's pace, any real progress of actually resolving our nation's financial problems; Congress, nevertheless, always seems to find the time to authorize Uncle Sam to spend more money. Unfortunately, the ferderal government is now spending money at a pace that is unsustainable.

That pace, by the way, is now approaching a mind-boggling $100,000 per second.

- Ed Smith, Publisher
The EHS Letter Manual

U. S. Infrastructure

2009-06-30T19:20:18Z

EHS Daily Journal #17 - June 26, 2009

U. S. Infrastructure

The U.S. infrastructure (roads, bridges, dams & levees, schools, water supply, solid waste systems, and much more) is deteriorating at a faster and faster pace.

ASCE (American Society of Civil Engineers) recently released the following "report card" for the respective infrastructure components (A=Excellent, B=Good, C=Mediocre, D=Poor, F=Failing):

Aviation D
Bridges C
Dams D
Drinking Water D-
Energy D+
Hazardous Waste D
Inland Waterways D-
Levees D-
Public Parks & Recreation C-
Rail C-
Roads D-
School D
Solid Waste C+
Transit D
Wastewater D-

Overall: D

ASCE further projects that the cost to bring these grades up to a "B" would be approximately $2.2 trillion over 5 years.

This situation is wreaking havoc throughout municipalities across America whose operating budgets are already unmercifully strained due to the failing U.S. economy. It also makes you wonder if all the billions of dollars invested in building and maintaining the country's infrastructure are being managed and spent properly.

Seems like America has, once again, been shortchanged.

- Ed Smith, Publisher
The EHS Letter Manual

Hidden Costs

2009-06-30T18:15:03Z

EHS Daily Journal #16 - June 25, 2009

Hidden Costs

Generally speaking, when a cost or expense is not anticipated and there is no disclosure in advance regarding the likelihood of incurring the cost; it may be considered to be hidden or undisclosed.

An example of this would be a consumer agreeing to pay a higher interest rate for a mortgage not realizing that the higher rate has nothing to do with the borrower's qualifications - but everything to do with building extra costs into deal to pay undisclosed fees or extra profits. For example, borrowing $200,000 over 30 years at a fixed rate of 6.65% instead of 6.20% generates an extra "hidden" cost of almost $60 per month or more than $20,000 over the life of the loan.

It is also important to realize that hidden costs are often the result of very complex and complicated schemes of deception that are often not detected until it's way too late.

Such is the case with the current U.S. housing and mortgage crisis which has plagued thousands of homeowners and investors. As you might have guessed, this scandal has all the right ingredients: political influence, greed, deception, non-disclosure, excessive fees and profits, and unsuspecting consumers.

Tragically, it doesn't appear that the U.S. Congress is above the use of such tactics. For example, in a few days the House will vote on the so-called "American Clean Energy and Security Act of 2009"; heralded as progressive legislation to preserve and regulate the efficient and controlled production and use of energy when, in reality (as reported by Citizens Against Government Waste), "this cap-and-trade plan is nothing more than a hidden tax that The Heritage Foundation has estimated could increase the average American family's energy bill by $1,500 annually!"

Just another small "hidden cost."

- Ed Smith, Publisher
The EHS Letter Manual

Usury Laws

2009-06-30T18:14:24Z

EHS Daily Journal #15 - June 24, 2009

Usury Laws

Generally speaking, usury laws are state laws which specify the maximum interest rate that may be charged by a lender.

Many folks wonder why, if these laws exist, that credit card companies are allowed to charge such exorbitant and excessive interest rates.

This is why:

1. Less than half the states put a cap on interest rates and a vast majority of credit card companies set up shop in these states that have the fewest restrictions or limits on interest rates.

2. These lender-friendly states allow a "sky is the limit" interest rate as long as it's stated in the credit card agreement.

3. In 1978, a U.S. Supreme Court ruling enabled the national banks to charge its credit-card customers the interest rate allowed in the bank's home state even if that rate was higher than the legal limit set by law in the customer's home state.

In any event, the current credit rate paid by approximately one-third of all credit-card holders is 20% or more.

However, despite all the talk about banks and credit card companies gouging consumers with high interest rates, the U.S. Senate defeated a recent bill (May, 2009) to cap rates at 15%.

The bill didn't even come close to passing. It needed 60 votes and only got 33.

- Ed Smith, Publisher
The EHS Letter Manual

Legalese

2009-06-30T18:13:47Z

EHS Daily Journal #14 - June 23, 2009

Legalese

Webster’s College Dictionary defines legalese as "the conventional language of legal forms, documents, etc., involving special vocabulary and formulations, often thought of as abstruse and incomprehensible to the layman."

An easy way to take advantage of a consumer, therefore, is to (a) reduce a given transaction to a written agreement that (b) is highly unlikely to be read or adequately understood; much less actually "agreed to".

But when a disagreement raises its ugly head, watch how fast that written agreement is thrown in your face!

How many of the following documents have you signed without really reading or understanding all the "fine print"?

- your credit card agreements?
- your bank account agreements?
- your internet, phone, or cable agreements?
- your loan agreements?
- your mortgage documents?
- your insurance policies (home, health, life, auto, disability, etc)?
- your investment and brokerage agreements?
- your pension agreements?
- your warranty agreements?

Unfortunately, a vast majority of all these agreements which govern, for all practical purposes, your financial well-being are intentionally designed to be overwhelming in terms of their length, substance and design; in hopes that you’ll "sign up" without too much resistance.

You get the picture.

- Ed Smith, Publisher
The EHS Letter Manual

Caveat Emptor

2009-06-30T18:13:11Z

EHS Daily Journal #13 - June 19, 2009

Caveat Emptor

The words "caveat emptor" (let the buyer beware) have acquired a special significance to American consumers with respect to an alarming trend that is spreading across the country.

That trend, simply put, is the increased use of unfair and deceptive trade practices in the marketplace and the increased tolerance and acceptance of those practices by the government and legal establishment. One ugly by-product of the failing U.S. economy is the use of deception as a means to make money from unsuspecting consumers by extracting hidden, undisclosed, excessive, and/or unnecessary costs.

Consumers who are not paying close attention can easily become the victim of unfair and deceptive tactics. A mortgage transaction can quickly turn into a wind-fall of extra fees and profits. The cost of an extended auto warranty can be all but pure profit due to its limited terms and conditions. A credit card can turn into a nightmare of charges and fees. A consumer’s own attorney can churn fees unmercifully. Debt collectors can harass and threaten with little accountability or recourse on the part of a consumer.

There are two very basic things, however, that you can do to keep from getting ripped off in a myriad of situations and financial transactions:

1. Get what you're doing in writing; and

2. Read and understand it BEFORE you sign it.

Sound pretty simple?

Ironically enough, if these basics had been followed by a majority of Americans (and actually promoted by the U.S. educational system), this country would not be in the financial mess it's in.

- Ed Smith, Publisher
The EHS Letter Manual

Conflicts of Interest

2009-06-30T18:12:29Z

EHS Daily Journal #12 - June 18, 2009

Conflicts of Interest

With respect to the current economic crisis in the United States, conflicts of interest come into play when the personal financial gains or objectives of public officials are at odds with the proper performance of their jobs.

In the legal arena, there are specific professional responsibility and conduct codes which are designed to eliminate the potentially damaging conflict that could evolve, for example, during a foreclosure proceeding where the same attorney is representing, in part or whole, the interests of (a) the lender or current holder of the mortgage being foreclosed, (b) the current holder of the mortgage note, (c) the current servicer of the mortgage, (d) the auction company, (e) a company that may be trying to buy the given mortgage or property through a pre-foreclosure short-sale or post-foreclosure purchase, and (f) his or her own interests to make a handsome profit on the deal - all at the same time!

But these professional codes that are heralded as "protecting us all" against the obvious corruption and widespread "inside dealing" are rarely recognized, challenged, and/or enforced. In fact, over the past several months, thousands of foreclosures have taken place under the exact (or similar) circumstances as described above.

The bottom line is that one of the major reasons for the current U.S. financial crisis is that members of Congress have, literally, both institutionalized and legislated some extraordinary "conflicts of interest" which now are hurting us all badly.

- Ed Smith, Publisher
The EHS Letter Manual

Tax Burden

2009-06-30T18:07:55Z

EHS Daily Journal #11 - June 17, 2009

Tax Burden

The crisis at hand is the simple fact that it will soon become all but impossible for Americans to pay enough taxes to support their government's operational budget.

If you don't think the crisis is real, and/or you don't think you are a part of it, think again.

In past years, American taxpayers have incurred a total, average tax burden (imposed by federal, state, and local governments) of approximately one-third of their aggregate incomes. Based on a U.S. population of 306,000,000 people, the current per capital national debt is over $37,000!

However, The national debt alone has just soared to an unbelievable $11.5 trillion and this number is expected to reach $20 trillion over the next decade.

Meanwhile the Washington Post, for example, recently reported that IRS tax collections will lag behind spending and that the Congressional Budget Office predicts that the national debt will exceed 82% of the entire U.S. economy by 2019.

Then what? Where is all this money supposed to come from?

The real goal seems obvious:

You make it & Uncle Sam will spend it - all of it.

- Ed Smith, Publisher
The EHS Letter Manual

Questionable Foreclosures

2009-06-30T18:06:10Z

EHS Daily Journal #10 - June 16, 2009

Questionable Foreclosures

The sheer number of foreclosures taking place, coupled with the fundamental, inherent lack of adequate "legal supervision" of the foreclosure process (by appropriate state and federal authorities) has allowed way too many foreclosure auctions to be conducted in a manner which is "questionable" at best; ranging from unfair and deceptive to outright illegal in nature.

The pooling of mortgages, credit swaps, derivative financing methods, and the sale of public interests in mortgages on Wall Street have obscured the actual rights of thousands of mortgagors as they face a maze of lenders, mortgagees, mortgage servicers, and/or their respective assignees, and/or their attorneys. In many cases, the deck is stacked so that it is almost impossible to fight a "defective" foreclosure; much less be able to afford to do so through the courts.

With the "foreclosure gun" held to their heads in these circumstances (i.e. being told to "pay up or get out"), most homeowners find that it is all but impossible to discuss or negotiate - even with sound intentions - a reasonable or equitable mortgage modification or other arrangement. So they simply throw in the towel.

Despite all the "help and hope rhetoric", the prospects of the banking community to make money while (a) a mortgage is in default, or (b) from the sale of a mortgage or property in the foreclosure process may be, indeed, far greater than entering into any loan modification or other arrangement that allows the homeowner to get back on his/her feet.

You would think that Congress could figure out that, if enough American families are thrown out on the streets, the "economic recovery" that's being suggested will, in fact, never happen.

- Ed Smith, Publisher
The EHS Letter Manual

Consumer Credit

2009-06-30T18:05:07Z

EHS Daily Journal #9 - June 15, 2009

Consumer Credit

In the past two years, consumer credit has declined, depending on whose numbers you use, over $2.5 trillion which represents approximately half of the consumer credit that credit card issuers made available just a few years ago. All issuers are approving fewer new accounts, offering smaller credit lines, and cancelling un-used accounts. Many are increasing interest and penalties on existing accounts.

The primary result is an obvious one. Many consumers and taxpayers will have absolutely nothing to "fall back on" for even a small emergency need. As soon as credit card payments are a few days late (no matter what the reason), that card holder is "financially strangled" with no way out.

The result is that tens of thousands of new bankruptcy filings are expected throughout 2009 and even more in 2010.

Mathematically, the federal government could allocate almost $10,000 in cash to every single family in the United States (there are approximately 115 million families) for a total cost of one trillion dollars.

Maybe that would be a better use of the so-called "bailout" funds.

- Ed Smith, Publisher
The EHS Letter Manual

Commercial Mortgage Defaults

2009-06-30T17:54:58Z

EHS Daily Journal #8 - June 12, 2009

Commercial Mortgage Defaults

While hundreds of thousands of residential mortgage defaults are leading to inevitable foreclosures and resulting in the demise of households across the United States, an equally devastating wave of destruction is now hitting commercial property owners as well.

In rough numbers, there are just over a trillion dollars in commercial mortgages owed to banks in the U.S. Recent predictions by several firms, reported by Bloomberg, say that defaults will soon rise to the highest levels since the savings and loan crisis of the early 1990's.

One basic, common denominator between residential and commercial defaults is the fact that the defaulted mortgage loans were based on inflated property values.

Who was more responsible for these over-valuations of the collateral backing all these defaulted mortgage loans? Was is the borrower, or was it the bank that was in control?

While the powers-to-be are quick to blame the borrowers for being in default, they are not so quick to call the banks on the carpet for their dominant role in hiring appraisers and approving the appraisals made.

But the banks, not the borrowers, are the ones getting the billions in bailout funds; despite the fact that their mistakes and bad decisions were just as bad, if not worse, than those of the borrowers.

In this manner, the banks are being awarded the opportunity to make money off the defaulted loans that go into foreclosure; as evidenced by the growing inventory of REO properties.

The borrowers (the American consumers and taxpayers), on the other hand, lose their property and their money - and maybe their families and businesses, too.

- Ed Smith, Publisher
The EHS Letter Manual

U.S. 2009 Budget Deficit

2009-06-30T17:54:21Z

EHS Daily Journal #7 - June 11, 2009

U.S. 2009 Budget Deficit

It was reported today (in the China Daily no less):

"WASHINGTON - US congressional analysts are expected on Friday to forecast even more red ink than expected, a record $1.8 trillion deficit for fiscal 2009, which could complicate President Barack Obama's efforts to pass his $3.55 trillion budget plan for 2010.

The Congressional Budget Office is expected to project a $1.8 trillion deficit for the fiscal year that ends September 30 and then forecast a drop to $1.4 trillion for fiscal 2010, a source familiar with the numbers told Reuters."

The original 2009 budget request (the last by President Bush) was for approximately $3.1 trillion (approximately $1.9 in mandatory spending and approximately $1.2 in discretionary spending). The budget was projected to raise the existing deficit of $10.2 trillion by a little over $400 billion (which was projected to disappear by 2012).

However, the deficit is now over $11.4 trillion....

Same old story. Just keep spending more money and tell everyone that everything will work out just fine.

Well, I guess things aren't working out - as it was also just reported (by the American Institute for Economic Research) that IRS tax revenues for April 09 had plunged $138 billion as compared to April 08.

Fasten your seat-belts and keep one hand on your wallet.

- Ed Smith, Publisher
The EHS Letter Manual

Billion Dollar Bailouts

2009-06-30T17:52:10Z

EHS Daily Journal #6 - June 10, 2009

Billion Dollar Bailouts

One could argue that the essence of the recent bailouts of many major financial institutions is a "slap in the face" for the American middle class.

While some of the spinsters and politicians will argue that the government intervention and extraordinary level of deficit spending has kept the economy afloat, the reality of the situation is that it's like putting a band-aid on a wound that needs major surgery.

Each day, more consumers and taxpayers are going under because the financial playing field is anything but level and they just can't stay in the game. For example, it doesn't take a genius to figure out that, if a bank can charge double-digit interest (with enough additional fees to choke a horse) on money it buys for a few percent at best - and still needs to get bailed out to the tune of tens of billions of dollars (all under the supposedly watchful eye of the federal government); something has to be drastically wrong.

There is.

The folks in Congress have become, habitual, incurable over-spenders. They are, and have been for quite some time, giving too much money and giving too many breaks to the wrong people.

Getting some common people with common sense in Congress may be a better approach to resolving the financial crisis at hand.

- Ed Smith, Publisher
The EHS Letter Manual

Foreclosures On Seniors

2009-06-30T17:51:19Z

EHS Daily Journal #5 - June 9, 2009

Foreclosures On Seniors

One very ugly by-product of the current foreclosure frenzy is the increasing number of seniors who are losing their homes as victims of circumstances that (a) they did not cause, and (b) are powerless to do anything about.

It's a national disgrace.

USA Today recently reported that over 600,000 seniors were either late on their mortgage payments and/or already in foreclosure. Many of these folks are on fixed incomes and, due to the myriad of circumstances that are beyond their control (decreasing home values, tightening credit qualifications, sky-rocketing living expenses, and much more), it is all but impossible to sell or refinance.

Many of the financial powerhouses are quite willing to foreclose on anyone that is technically in default; regardless of age or circumstances.

So, in the case of a senior who has diligently accumulated some equity over the years but has understandably fallen behind, the opportunity to sell his or her home and/or use the equity (if it hasn't already disappeared to due to the failed economy) to establish residence in an assisted living facility or retirement home can disappear in a heart-beat as the hammer falls.

But hefty fees and profits will evolve for those who orchestrate these foreclosures.

You would think the current administration would put this situation somewhere near the top of the list of things that need to "change".

- Ed Smith, Publisher
The EHS Letter Manual

Mortgage Servicing Abuses

2009-06-30T17:47:35Z

EHS Daily Journal #4 - June 8, 2009

Mortgage Servicing Abuses

Slice it any way you want, but many mortgage servicing firms are making substantial fees from loans in default. In the final analysis, they have incentives to NOT communicate with borrowers in order to collect much more money through late fees, penalties, legal fees, forbearance fees, and a host of other possible pre-foreclosure and foreclosure fees.

All too often, borrowers fall prey to a host of unfair and deceptive tactics when they find themselves in default. The most basic of these is the practice of leading a borrower to believe that a defaulted payment arrangement is going to enable a borrower to keep his or her home when, in reality, the arrangement (a) doesn't even stop the pending or immanent foreclosure, and (b) serves only to make sure the borrower doesn't have a dime left to defend against what is often a "questionably legal" foreclosure (given the manner in which most mortgages have been shuffled around Wall Street and rendered "toxic"). Worse yet is the practice of lenders and their mortgage servicers working together to set an actual "foreclosure quota" with respect to a given loan portfolio.

The sad truth here is that the mortgage servicers handling many of the major mortgage portfolios are running interference for their respective principals to conduct mass foreclosures; believing, apparently, that the short-term profits to be made from defaulted loans and the foreclosure process (including re-sales, short-sales, legal fees, brokerage fees, and much more) are infinitely greater than anything to be gained by helping the borrower get back on track through a reasonable and equitable loan modification.

You would think that the powers-to-be would recognize that it would be in America's best interests to get as many homeowners as possible back on a reasonable track with the continued financing and ownership of their homes.

However, for the sake of easy money and a quick buck, they don't.

- Ed Smith, Publisher
The EHS Letter Manual

Congressional Paychecks & Benefits

2009-06-30T17:45:36Z

EHS Daily Journal #3 - June 5, 2009

Congressional Paychecks & Benefits

At a time when America is struggling to stay afloat, members of Congress are paying themselves increased salaries with extraodinary benefits. Their salaries for the last three years are:

2007: $165,200
2008: $169,300
2009: $174,000

Their benefit package is nothing short of spectacular:

Lucrative Retirement Package
Personal Staff Allowances (staffers can be paid 6-figure salaries)
Huge Expense Allowances
The "Franking Privilege" (free postage)
Domestic and Foreign Travel
Outside Employment Income (as, for example, a real estate broker)
Health Care ($35 a month in 2007 for unlimited doctor visits, no deductibles, and no co-pays!)

This arrangement for compensation and benefits makes it pretty obvious that their pay and privilege is not contingent on their performance. This sets a horrible example for rest of the country.

Unfortunately, despite all the rhetoric you hear to the contrary, these circumstances make it virtually impossible for a member of Congress to relate to the average American consumer and taxpayer - and it is quite obvious that they don't.

The bottom line is that they are taking care of themselves, not you, first.

- Ed Smith, Publisher
The EHS Letter Manual

Home Equity Loss

2009-06-30T17:42:35Z

EHS Daily Journal #2 - June 4, 2009

Home Equity Loss

Depending on whose numbers you use, home equity in the U.S. contributed to approximately $300 billion of annual consumer spending prior to 2006. By the fourth quarter of 2007, that number was roughly cut in half and by early 2008 it was down in the $50 billion range.

The progressive rhetoric has been "not to worry" as it was anticipated that increased jobs and incomes would compensate for this loss in consumer spending caused by shrinking, or totally disappearing, home equities.

That didn't happen and now, obviously, it isn't happening; despite the huge numbers of hopeful Americans that thought it would when they voted for "change" in the presidential election.

So what now? Home equity was not just a "fall back" source for living expenses. Home equities provided consumers with a way to finance education costs, emergency medical needs, retirement, and much more.

This situation makes it absolutely imperative for homeowners to, at least, take the necessary steps to protect their home ownership before they are "forced" to lose that as well.

- Ed Smith, Publisher
The EHS Letter Manual

GM Bankruptcy

2009-06-30T17:40:39Z

EHS Daily Journal #1 - June 3, 2009

GM Bankruptcy

As you know, GM just filed for bankruptcy.

So who's next? How many bankruptcies by multi-billion dollar companies can the American economy weather? Are we kidding ourselves about recovery?

Approximately $20 billion was invested by Uncle Sam - and now lost - trying to prevent this bankruptcy. An additional $30 billion will be invested in the next few months to create a new GM that is 60% owned by the U.S. Government.

Do you really think the new company will operate more efficiently and profitably with Uncle Sam as the largest stockholder?

The U.S. National Debt is now at almost $11.4 trillion as Congress continues to bail out the big boys but offers only "added insult to injury" to the tens of thousands of Americans, and their families, that that are being financially devastated in every imaginable way at the hands of Uncle Sam's self-serving fiscal policies and actions.

It is for this primary reason that consumers and taxpayers have to think in terms of taking proactive steps to "fend for themselves" as their money, income, and property is being attacked by the short-falls and "domino-effect" of unsustainable budgets and deficit spending at all levels of government.

- Ed Smith, Publisher
The EHS Letter Manual