StopTheSqueeze.org Newsletter - Americans For Debt Relief Now!

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-- 05 September 2007 --

IT’S YOUR TURN TO ACT.

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MONITORING THE MELTDOWN
The Weekly Stop The Squeeze Newsletter
In Debt We Trust director Danny Schechter reports on the film and campaign.

It’s official. It’s Presidential. The “Decider” has decided. Yes, Houston, we do have a problem with the housing mess. And yes, Congress, your White House is finally going to act to help homeowners hustled into sub-prime loans find some relief.

In a belated response to market meltdowns, imploding companies (the number now stands at 145) and two million families facing foreclosure, your compassionate conservative commander-in-chief has decided it’s time to get involved, to show that the federal government is there in our hour of need. With prices and home value falling, building is grinding to a halt and economic growth is at risk.

While some may think that the President acted just to defend low income owners, perhaps to atone for his earlier belated response to Katrina, there is another problem that the blue bloods in the GOP were keen that he be responsive to - one closer to home - the threat to their neighborhoods and voting base.

The LA Times outlined this emerging threat to this way:

“Houses abandoned to foreclosure are beginning to breed trouble, adding neighbors to the growing ranks of victims.
Stagnant swimming pools spawn mosquitoes, which can carry the potentially deadly West Nile virus. Empty rooms lure squatters and vandals. And brown lawns and dead vegetation are creating eyesores in well-tended neighborhoods.

It was time to act to save the suburbs and “well-tended neighborhoods.” Clearly there’s more at stake. The New York Times reported Sunday: “At current rates, analysts expect foreclosure filings to hit a rate approaching heights not seen since the Great Depression.”

No matter, this time, there will be no inflated war talk, heaven forbid a “War on Wall Street” or a declaration of a national emergency. That won’t work, the pundits assure us. So instead we will throw money at the problem but not too much and make the rhetoric seem beneficent. Last Friday, the President announced some modest, mild, limited intervention—all terms used in the press—to put a band aid on this cancer, and whatever you do, don’t call it a bail-out.

This initiative, aimed at helping a mere 18,000 families had these components:

Urge Congress to pass legislation that would give the Federal Housing Administration more flexibility in assisting mortgage holders with subprime mortgages
Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans
Call for rigorously enforcing predatory lending laws and strengthening lending practices

Sounds good, but judging by the Orwellian way this Administration uses words, like peace to mean war, could this non-bailout really be a bailout?

“A GIFT TO WALL STREET”

The business magazine Forbes thinks so and reports that it is not the borrowers who are being bailed out but the lenders.

"In a Labor Day gift to Wall Street, President Bush on Friday announced plans to expand the Federal Housing Administration so that an additional 80,000 risky borrowers can benefit from its mortgage insurance program. In doing so, he sent a signal that the federal government would act to keep the market turmoil brought on by the implosion of risky mortgage lending from damaging the economy in an election season."

That’s certainly not the way most of the media played it—as a “Labor Day gift to Wall Street.”

EVEN IF THE FED ACTS: NO PANACEA SAYS NY TIMES

Meanwhile, for weeks now the business press has been reporting on whether the Federal Reserve Bank will cut its main interest rate as so many on Wall Street want. (The Fed chairman has now said he is “ready to act.”) That was supposed to be the measure that would finally ease the crisis. And now, guess what? The New York Times reported Monday that “Few Expect A Panacea In A Rate Cut By The Fed.” And so one more quick fix hits the dirt. In the same edition, the Times discovered one way to ease your debt---go and fight in Iraq. Brilliant!

The San Francisco Chronicle explains:

"I've met people who’ve gone on to one or more tours just to get out of debt, with jobs much more dangerous than mine,” Sloan said. “One soldier in Afghanistan said, ‘That’s why I’m here, to get out of debt.’

In 2005, military charities for all branches of service provided $87,332,758 in emergency no-interest loans or grants to 100,808 service members in financial distress."

WHO IS AT FAULT?

Am I the only one troubled by the impression conveyed in so many of these stories that the problem rests with the people, with us as if WE are sub-prime, and not with the predatory lenders who misled so many of us. Over in Europe, newspapers are telling it like it is. Will Hutton, one of England’s top journalists calls this sad spectacle, “THEFT.” And columnist Wolfgang Muchau of the Financial Times warns: “Prepare for the credit crisis to spread.”

WHICH ECONOMISTS SHOULD YOU BELIEVE?

Take the iTulip Test

ESTIMATE OF THE SCALE OF PROBLEM IN POUNDS

The Guardian in London reported Tuesday: “It is believed the amount of mortgage debt from the US housing market that has been repackaged and sold is anywhere between £50bn and £250bn. The debt is sitting on the balance sheets of banks in the US, Europe and Asia.

A PERSONAL IRONY

Another irony had come home to me personally. My film IN DEBT WE TRUST, while still timely and relevant, has a currently misleading title or so it would appear. “We” may not be TRUSTING debt very long in light of the market meltdowns that have shattered the credit market, led to so many mortgage companies closing, and so much uncertainty in financial circles where over a TRILLION dollars generated from sub-prime loans is at risk. The film’s subtitle, “America Before the Bubble Bursts” may now also be a bit out of date too because it seems like the bubble has burst.

“Its too bad, Danny,” a producer friend at a leading network news magazine told me, “you were too early.” Can that be a true? Why weren’t they raising the alarm? I am still annoyed at a movie critic in a San Francisco Daily who criticized me for not being clairvoyant enough for not showing what would happen AFTER THE BUBBLE BURST even though that would have been another film. Well I guess we will all find out, won’t we?

But truth to tell, that too is misleading because there are more bubbles waiting to implode and they could be even more serious in a country so committed to credit. Just watch TV ads and you will see a whole new round of Master Card PRICELESS ads and other commercials encouraging you not to pay in cash, but to “swipe” your card instead, It turns out that credit card defaults are way up as are car payments. Auto repossessions are on the increase as the squeeze we are all facing hits home. And so the credit card companies are redoubling efforts to get you more hooked on more debt. They want to replace paper money all together.

As for housing, we are just beginning to see all the mortgage “resets” which raise the interest rates for home owners. As that “resets” upwards, foreclosures will increase and increase. And if if you don’t lose your home, you could lose as much as half its value. Reports the Boston Herald: “ “Think the subprime mortgage meltdown was frightful? Now consider the prospect of your home losing half its value.”

BANKS AT RISK TOO, EXPERT WARNS

The banks that may end up with these assets are in trouble as Aaron Krowne of the indispensable Ml-implode website told the Robb Report:

"I'm more worried about banks at this point. Banks are between 50 and 60% exposed to real estate by their net assets. Banks have held up thus far because they have much deeper pockets than the non-bank lending specialists, though a few have taken sizeable write-downs on mortgage portfolios. But it is well known the write-downs have been largely put off by delaying the mark-to-market process; even the bulk of the ratings downgrades have still not happened, so the real balance sheet hit is yet to come. And banks will see their real estate holdings of all sorts deflate in value. Those that weren't sufficiently diversified or aren't considered "important" enough for a bail-out could see failure."

MONEY MEN CAN’T EVEN MEASURE LOSSES

What we need to realize is that the geniuses who came up with all these clever “instruments” like “credit derivatives” don’t really know how much is being lost This is amazing in itself---money men don’t know what is going on with their own money! Gabriel Kolko writes on ZNET:

"It is impossible to measure the extent of the losses. The final results of this deluge have yet to be calculated. Even many of the players who have stakes in the countless arcane investment instruments are utterly ignorant. The sums are enormous."

Only a few of the many measures give us a rough estimate:

The present crisis began-it has scarcely ended there--with subprime mortgage loans in the U.S., which were valued at over $1.3 trillion at the beginning of 2007 but are, for practical purposes, worth far, far less today. We can ignore the impact of this crisis on U.S. housing prices, but some projections are of a 10 percent decline-another trillion or so. Indirectly, of course, the mortgage crisis has also brought many millions of people into the larger financial world and they will get badly hurt.

What the subprime market did was unleash a far greater maelstrom involving banks in Germany, France, Asia, and throughout the world, calling into question much of the world financial system as it has developed over the past decade.

HOW DID THIS HAPPEN?

What many of us don’t realize is that the shady practices that led to this crisis didn't just happen by chance but were planned and encouraged by leading financial institutions who have shaped our laws to encourage this business and at the same time to undermine all attempts at regulation, including law against usury. Wall Street firms encouraged the securitization strategy that brought in money from predatory lending/subprime mortgage schemes.

Many people played along because they thought they were getting free money as in getting a house for cheap, and then borrowing on it or selling it as real estate prices went up. But what happens when real estate prices go down? That’s what’s happening now.

The Fordham Law Review carried a long essay recently by two scholars who persuasively argue that Wall Street, and the media and public turned “a blind eye” to the consequences. Now the industry has to play catch up—but its like building a dyke in New Orleans AFTER the flood. OOPS. They also cite a study that shows that lending costs are lower in states that enforce laws against predatory lending.

Most of us also may not realize that regulations are actually in the interest of business because they set up rules for everyone to play by and insure credibility and transparency. With no rules, its chaos—and that’s what we are seeing. So it is not surprising that international institutions want to come in and regulate the anarchy in the USA.

RECESSION ON THE WAY

Acamar, a forecasting firm is now explaining:

”Greed and fear are the primary drivers of financial markets. We are now moving into an environment where the lesson of how quickly things can turn nasty has been witnessed…. The US is headed for a recession. Given how overextended it is fiscally, this recession may turn out to be much worse than a typical business cycle recession lasting 12-18 months."

WILL CONGRESS SAVE US?

No Quick Action Expected on Mortgages:

"WASHINGTON (AP) - Want government help to get out of a bad subprime mortgage? Don't look for Congress to come to your rescue anytime soon."

SO, WHAT DO WE DO?

Sorry, folks, not too much good news in this newsletter. What is clear is that if this situation is to change, if there to be meaningful debt relief, not just gestures and pathetic presidential pronouncements, the people have to get involved and speak out.

Showing IN DEBT WE TRUST can help us launch a campaign. We received some good news this week that the film has been bought for showing on TV in China and South Korea with two other countries actively considering it. At the same time, an executive at an international TV network told me that he considers this just an American problem. I sent him this article published on Monday:

FRANKFURT, Sept 2 (Reuters) - Global economic growth will take a hit as a result of the U.S. subprime mortgage crisis, says the chief executive of Deutsche Bank

So we are all affected.

Its time to act: What are you waiting for????
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