The KISS Approach

The biggest problem with government is it complicates everything. Everything should be done using the KISS approach. Another idea to fix the mortgage issue is to use what is already in place, the FHA program:

Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965.

When the FHA was created, the housing industry was flat on its back:

Two million construction workers had lost their jobs.

Terms were difficult to meet for homebuyers seeking mortgages.

Mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule spread over three to five years and ending with a balloon payment.

America was primarily a nation of renters. Only four in 10 households owned homes.

During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.

In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA’s emergency financing kept cash-strapped properties afloat.

 

The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.

 

That is an excerpt from the HUD website on the FHA program. Use what is there with simple modifications: fixed interest rate (4%), reduced refinancing costs, available to everyone.

 

This would make things simple, cost less, and would treat everyone equally.

The Change we were promised

Open letter to President Obama

The last thing you need is someone who is an expert in the field for most of the positions you’re trying to fill. Get someone who is smart and can bring in new ideas and new technology. Get people who know technology and is good at process improvement. Hiring someone who knows all of the key players is the absolute wrong move. Don’t listen to the experts who tell you otherwise. If America listened to them, you wouldn’t have been elected president. John McCain or someone like Tom Daschle would be there in your place.

You are not an expert in the field, nor do you know all of the key players. You are smart, know technology, and have fresh ideas. You said a change was needed. That is the criteria you told us we needed for someone to lead the country. That’s why you passed our interview process. We, the American people, decided that is what the country needed.

Why then do you turn around and start choosing leaders for agencies that need reform that do not fit these criteria? The exact same argument you made to us for choosing you to lead the country applies when choosing someone to lead reform in key agencies. Why would you look for someone with other credentials, when you told us that is what we need to fix things? If this applies to the highest office in the land, it should apply to the highest office in each key agency. Each leader can then hire a Joe Biden to help and give advice.

If congress does not agree with someone you choose that meets the criteria you said we needed for change, then bring it to our attention. We Americans will interview your candidate and provide confirmation. If some members of congress want you to hire their choice, let them run for President. When they get elected, they can choose whomever they want.

We Americans will let congress know that change is needed. Unless they willingly change, the change that started in the White House will move into Congress come election time, or sooner if things keep getting worse.

You also said you wanted to hear from the people. If you’re truly sincere, then you need to give us a vehicle to send you our thoughts and ideas. You put up a blog, but don’t accept comments. You put up a website for the middleclass, but only provide a small 500 character limit form for well wishers. If you truly want to hear from us, the people that elected you then make it easy for us to do so. Give us a proper website to submit ideas. Put up a proper blog so we can give you feedback. Put up kiosks where the middleclass go, like supermarkets, discount chain stores and libraries so you know the ideas are from us and not the rich.

So far, we have seen very little coming out of the White House that reflected your core ideas and principles. For now, we don’t blame you, but the self service ones that have been giving you advice. Go to the people that you know will give you good advice, the American people that elected you.

Voodoo Economics and the Trickle Down theory

For centuries, consumers had a major hand in determining which businesses grew and which ones closed. If you provided a decent product or service at a fair price, or held a monopoly on a product in demand, your business prospered. As the population grew and the population prospered, so did your business. The rules of supply and demand guided which businesses prospered and which ones didn’t.

The law of demand states that, all things being equal, as the demand for a product or service goes up, the cost goes up, as the demand goes down, the price will go down.

The law of supply states that, all things being equal, as the supply of a product down the cost will go up, and as the supply goes up, the cost will go down.

For years, companies and factories have used these principles in planning future direction. With the introduction of Voodoo Economics and the trickledown theory, the guiding principles of supply and demand no longer apply and are tossed out the window.

Voodoo Economics is very basic and simple. Give investors and large businesses more money and they will invest and expand, regardless of demand. Over the last 20 years, this new set of economic laws has led to the enrichment of the investors, large businesses and the debt load of everyone else, until that is, the current crisis came into play. Since many Republicans are trying to encourage President Obama and his staff to consider these guiding principles as they look for ways to stimulate the economy, we thought it may help if everyone knew the new meaning of the legacy economic terms and how they applied using Voodoo Economics. If we missed some we do apologize and ask that you send us a note to let us know and we’ll try to update the list of terms. In order to help those that don’t fully comprehend Voodoo Economics and the trickledown theory, we’ve provided the old definition of each term, followed by the new and more befitting definition.

	Law of Demand
Old Definition	The quantity of items demanded increases and decreases in the opposite direction from changes in price. At a lower price, people can afford to buy more of an item (and more frequently) than they can at a higher price. At lower prices, people tend to buy things as a substitute for something more expensive.
New Definition	The perception of demand increases and decreases in relation to marketing dollars spent. At a higher marketing budget, people will borrow more to buy an item (and more frequently) regardless of the price. At lower marketing budgets, people tend to buy things as a substitute for something more expensive.
	Law of Supply
Old Definition	The supply increases as prices increase and decreases as prices decrease. Those already in a business will try to increase production as a way of increasing their profits. The reason why quantity offered at a higher price will be greater is that other people will be attracted to the business.
New Definition	Prices will increase regardless of supply. Those already in a business will try to outsource production as a way of increasing their profits. The reason why quantity offered at a higher price will be greater is that the business failed to monopolize the market.
	Market
Old Definition	A condition which the forces of demand and supply interact to set the price at which transactions take place; location where goods and services are exchanged freely.
New Definition	A coalition which sets the price at which transactions take place; location where goods and services are controlled and manipulated.
	Market Economy
Old Definition	An economy based on free choice by consumers and producers.
New Definition	An economy based on conditions set by the market for consumers and producers.
	Market Price
Old Definition	The price at which supply and demand are equal. The market price will remain unchanged as long as supply and demand remains unchanged. If there is an increase in demand or a decrease in supply, the market price will increase. If the opposite occurs, that is, if demand decreases and supply increases, the market price will decrease.
New Definition	The price set by the coalition.

	Ability to pay principal
Old Definition	States that citizens who can most afford them should pay taxes.
New Definition	States that taxes should be paid by the majority (middleclass). Those who can afford to invest should not have to pay taxes, or should pay reduced taxes
	Bank
Old Definition	A financial organization that receives deposits, creates loans, and directly controls a significant part of the nation’s money supply.
New Definition	A financial organization that directly controls a significant part of the nation’s money supply. Can borrow money cheaply from the Fed as needed.
	Capitalism
Old Definition	An economic system based on the private ownership of the means of production.
New Definition	An economic system based on the private ownership of the means of production when profitable. All excessive losses would be shared with the public.
	Commercial Bank
Old Definition	A financial institution that accepts demand deposits and makes loans and provides other services for the public.
New Definition	A financial organization that directly controls a more significant part of the nation’s money supply. Can borrow money cheaply from the Fed as needed.
	Competition
Old Definition	The rivalry between sellers in the same field. The competition is for customers and profit. Because of competition, businesses must provide the best product and best service the lowest price.
New Definition	The rivalry between investors in the same field to influence the government. The competition is for senators and congressmen to remove regulations. Because of competition, businesses provide products and services at the highest price.
	Consumer
Old Definition	A person who buys and uses goods and services.
New Definition	A person who must continue to buy and use goods and services regardless of their financial situation for the good of the economy.
	Continuous Improvement
Old Definition	An important foundation of successful businesses. The company that continues to evaluate its product, either good or service, to improve its quality, performance, availability or price will be able to keep pace or even lead the competition.
New Definition	An important foundation of successful businesses. The company that continues to evaluate and reduce employee benefits in order to improve profit margins will be able to keep pace or even lead the competition.
	Contract
Old Definition	A legally binding agreement between parties.
New Definition	A legally binding agreement between parties so long as it is profitable to the larger of the two parties
	Contraction
Old Definition	The downward movement of the business cycle marked by decreased investment, profits, and consumer demand.
New Definition	The downward movement of the business cycle caused by increased taxes.
	Cost of Living
Old Definition	The quantity of currency needed for a given standard of living.
New Definition	This term is becoming obsolete, as the credit score now determines ones standard of living
	Deficit
Old Definition	When spending exceeds revenues.
New Definition	Defines a Middleclass consumer

Issues with refinancing

If the government really wants to help homeowners and the economy, it should make refinancing easier and the rates lower. The banks are paying the lowest rates in over 50 years, but this is not being passed down to consumers. In instances where the banks are providing a competitive rate, the fees they are charging to get that rate and to refinance take the appeal out of refinancing. As part of our process improvement initiative for the government, we are going to provide recommendations on how to improve the mortgage refinancing process so that homeowners would see an immediate benefit, which would help with the economic recovery.

Current Process

Refinancing is almost identical to a new mortgage, home purchase process:

Complete application

Pay application fee

Pay rate lock-in fee

Perform appraisal

Perform closing

Once application is completed, process can take anywhere from 2 weeks to 60 days.

Average costs (for a $250,000 mortgage refinance on a home valued at $400,000):

Title Insurance            1,280
Courier/Messenger Fees        35
Processing Fee            550
Application Fee            750
Recording Fees            70
Settlement / Closing Fee        387
Closing Service Letter            35
Tax Service Fee            84
Loan Discount Points            3125
Total Closing Fees:            6316

Pre-Paid and Escrow fees

Hazard Insurance Premium        625
Per diem interest for 17 days        538
Hazard Insurance Reserves        104
Real Estate Tax Reserves        1000

TOTAL CASH NEEDED AT CLOSING     $8,584

These are actual rates taken from Chase website. Depending on bank, these costs may be higher or lower. The discounts points can be eliminated, but you will have to pay a higher interest rate.

Aside from Transfer fees and taxes, these closing fees are actually higher for a refinance than for an original home purchase, when both were compared on the Chase site.

Mortgage insurance (approx $80) will also be added if the equity is less than 20%.

Keep in mind; these fees are for someone with outstanding credit score and 37% equity. Most people will actually pay higher fees and rates, or be turned down flat. Complications that will delay the process, increase mortgage rate and fees or result in denial include:

    Home value decreased, resulting in reduced equity

    Decreased credit score, regardless of reason

    Reduced income

 

Proposed Process:

Complete application

Pay small application and processing fee ($100 or less)

Rate adjusted to government mandated rate. Number of years left on mortgage remains.

Once application is completed, process should not take any longer than 2 weeks.

 

Benefits:

Monthly expenses reduced enough for consumers to have an impact. Consumers will have additional cash that can be applied towards purchases which would help to stimulate the economy.

Fewer Foreclosures: The value of housing would stop declining. Less people would be left homeless.

Toxic assets would be valued properly

Most investors will know the value of their mortgage backed investments.

 

Disadvantages:

Banks would not make as much money on refinancing mortgages.

Some investors would get a lower rate of return on their mortgage backed investment.

 

Next steps:

Since the banks have been unwilling to simplify this process on their own, the government should stop providing any additional bailout money to the banks and instead provide money to Fannie and Freddie to refinance mortgages using this process.

Any banks that fail and are taken over by the government would automatically convert to this process and begin refinancing mortgages in this fashion.

Banks that ultimately do get more government funding would have to perform refinancing using this method as a condition of the funding.

STOP!!! No More Credit!

Please stop trying to force the banks to extend more credit. That is not the problem. We owe too much already and the last thing we need is more credit. What we need is:

• To be able to buy groceries and gas without having to use credit
  

   

• To be able to fix the car without using a credit card
  

   

• To be able to fix the leaking roof on the house without taking out a loan
  

   

• To be able to send the kids to school without taking out a loan
  

   

• To be able to pay off what we owe.
  

   

• To be able to put money in the bank for a rainy day
  

So please stop trying to get us more credit. That is the last thing we need.

Summary of steps to fix the economy

The root cause of this crisis needs to be addressed. The middleclass must be able to afford the bare necessities out of their wages, without having to borrow.  Giving the banks money so they can extend credit so people can pay their bills is not the answer, it will only make the crisis worse. Sending them even a $5000 check will not help either. It must be something to offset the large credit payments they make each month.

To fix this economic crisis, either a substantial tax cut for the middleclass or the steps below need to be taken.

1.       Reduce all outstanding mortgages below jumbo loan amounts by 25 to 50 percent and reduce interest rate to specified fixed rates, without any fees or costs. In cases where there are first and secondary mortgages or home equity loans, they should be combined to create one new loan reduced by the amount above. An example would be: a $200,000 balance on an adjustable rate mortgage with 27 years left would become $150,000 at 4.5% fixed rate with 27 years remaining. Another example: a $250,000 balance on a fixed rate mortgage with 13 years left with a $100,000 home equity adjustable rate loan would become $262,500 at 4% fixed rate with 13 years remaining.

To ensure fairness, this must be done for all homeowners, and not just for ones that are late on payments. This would also have the side effect of reclassifying all outstanding loans and would allow banks to put a value on their toxic assets. For banks that refuse to participate in this program, Fannie and Freddie would buy the mortgage from the bank and make the adjustment for the homeowner. The offending bank would then be restricted from receiving benefits from any government programs, including selling future mortgages to Fannie and Freddie.

2.       Forgive all outstanding student loans.

People should not have to borrow money to send their kids to college. All public colleges and universities should be affordable, or free, for every family that wants to send kids there.

Starting immediately, the student loan program should be dismantled, and money allocated to public schools so that any family that wants to send their kids to one can do so without needing a loan. Bailout money should then be used to pay off all outstanding student loans for all middleclass and below families.

3.       If needed, the next steps would be to examine credit card debt for a similar type program.

A starting point for new Corporate Governance rules

Corporate Governance:

Board of Directors:

Members must be linked to the company.

50 % of the board must come from stock holders

50% of the board must come from employees

If there are no external stock holders, then board members must come from the employees

Members that are part of both groups would fall under the employee category.

Board of Directors members cannot be paid to serve on the board. This is an unpaid position, including no stock grants, stock options or other forms of compensation. They can only be reimbursed for expenses related to board meetings and corporate business.

 

Compensation:

Total comp of highest paid employee cannot be more than 40x (or an appropriate multiple) of lowest paid employee.

Corporate policy must apply to all employees equally.  Senior executives must follow same HR policies, including retirement, pension and medical.

No employment contracts are allowed that bypass HR policy or extend additional benefits, unless they apply to everyone.

Chief type senior positions (CEO, COO…) cannot be filled by consultants for extended periods of time.

The Economic Crisis and the best solutions to end it quickly

Corporate America squeezed the middleclass until there was no more left to squeeze out of them.  The middleclass, which was borrowing money to pay for their cars, kids’ college education, house, medical bills, and countless other items, faced a dilemma. The dramatic increase in gas prices, quickly followed by higher electricity, heating and food prices, suddenly forced them to make a choice: pay all of the bills and starve, or pay some bills and feed the family.

All of a sudden, they weren’t making enough money to pay back everything they owed and feed themselves. They stopped paying the only debt they could walk away from; their mortgage. Credit card and student load debt are both protected by bankruptcy laws, so unless they were totally destitute, they had to keep paying their credit card debt (student load debt will stay with you until you die).

When the middleclass stopped paying their mortgages, the banks, realizing the dilemma of the middleclass, started taking back any credit lines they had already extended that wasn’t used yet.

The effect of these actions was a double blow to the banking and financial industry.  The main source of income for them was suddenly gone, and the value of any mortgage related assets they held was dropping fast. Because of this one-two punch, the financial industry was crippled, almost overnight.  Even faster, they went to the Federal Government for a bailout, with the threat that if they didn’t get money they would stop lending altogether.  The White House gave them what they wanted. The banks started lending, but only to people with spotless credit and with enough cash to show they didn’t really need the loan. The majority of the people couldn’t get any credit because the banks knew the middleclass couldn’t afford to pay back any more loans. In addition, they made the situation even tougher for the middleclass by doing massive layoffs. This snowballed into the crisis the world is now in.

The government can give the banks every dollar they ask for, but it will do nothing to help fix the economy. The money would allow the banks senior executives who started this crisis to keep their jobs, and that’s basically all. They will lay off more and more people and continue to freeze credit from anyone that’s in a bind. Adjusting someone’s mortgage from 30 to 40 or 45 years, which is how the banks were contributing to help consumers, only helped the banks.

The root cause of this crisis needs to be addressed, and until that is done, the crisis will continue to grow. The middleclass must be able to afford the bare necessities out of their wages, without having to borrow.  We’re at a point where both parents in a typical middleclass family have to work, and it still does not give them enough income to pay day to day expenses.

As corporations kept reducing employee benefits, the employees had to make up the shortfall from their wages. In additions, corporations were picking office and factory locations based primarily on convenience for the senior executive making the decision, and not on what’s best for the majority. This forced middleclass workers to move further and further away from work in order to find housing they could afford. With these long commutes came larger daily costs to get to work and back home, not to mention the impact on the quality of life. Coupled with climbing housing prices, outrageous college costs, medical expenses, energy bills and so on and the only ones who can afford these luxury items are the rich.

To fix this economic crisis, the largest expenses need to be reduced or eliminated. Housing prices will continue to fall until the middleclass can once again afford to buy houses, so that will fix itself.

Immediate steps:

1.       Reduce all outstanding mortgages below jumbo loan amounts by 25 to 50 percent and reduce interest rate to specified fixed rates, without any fees or costs. In cases where there are first and secondary mortgages or home equity loans, they should be combined to create one new loan reduced by the amount above. An example would be: a $200,000 balance on an adjustable rate mortgage with 27 years left would become $150,000 at 4.5% fixed rate with 27 years remaining. Another example: a $250,000 balance on a fixed rate mortgage with 13 years left with a $100,000 home equity adjustable rate loan would become $262,500 at 4% fixed rate with 13 years remaining.

To ensure fairness, this must be done for all homeowners, and not just for ones that are late on payments. This would also have the side effect of reclassifying all outstanding loans and would allow banks to put a value on their toxic assets. For banks that refuse to participate in this program, Fannie and Freddie would buy the mortgage from the bank and make the adjustment for the homeowner. The offending bank would then be restricted from receiving benefits from any government programs, including selling future mortgages to Fannie and Freddie.

2.       Forgive all outstanding student loans.

People should not have to borrow money to send their kids to college. All public colleges and universities should be affordable, or free, for every family that wants to send kids there.

Starting immediately, the student loan program should be dismantled, and money allocated to public schools so that any family that wants to send their kids to one can do so without needing a loan. Bailout money should then be used to pay off all outstanding student loans for all middleclass and below families.

3.       If needed, the next step would be to examine credit card debt for a similar type program.

To help pay for this and reduce the federal budget, a process improvement review should be performed at every federal agency. Technology solutions should be implemented to automate and streamline manual or outdated processes. The purpose here is to be able to process more, using the same or less resources. Resources would be reallocated to alleviate shortages elsewhere.

Distribution of wealth (or simply Greed)

A lot is being said regarding Obama’s plan to distribute wealth.  It’s not fair to the rich is the biggest complaint. Some politicians and the news media are making sure everyone hears these complaints.  The main one being that it is not fair to take money from the rich to give to the middleclass.

No one complained when the government cut taxes for large corporations and the rich under the guise of helping to stimulate the economy; trickledown economics.

Unfortunately, as the money trickled down to the middleclass and poor, it gushed out faster than it was coming in as the cost of living leapt higher, and large corporations began cutting employee benefits.

The rich began to get richer and large corporation started making record profits. As the saying goes, give them an inch…, large corporations and the rich got greedier.

To satisfy their greed, they started taking from the middleclass. What they allowed to trickle down to these groups, they took back many times over.

The list below contains some of the major ways that large corporations began taking money from the middleclass to give to themselves and to their rich stockholders. The changes were slow and subtle at first, but became more frequent with larger effects.

·         Profit sharing has virtually disappeared at almost all large corporations. Employees no longer had a share in their company’s success. If the company did good, rich stock holders and senior executives did well, getting dividends and outrageous amounts of stock, stock options and cash bonuses.  If it did badly, the people at the bottom were let go. This resulted in a 5 – 10 percent reduction of middleclass value

Other employee benefits began to disappear:

·         Sick time that employees never used and were able to bank disappeared. Don’t use it by the end of the year and it disappears, use it and you’ll get a poor performance rating, or worse. This saved large corporations millions of dollars at the expense of sick workers and the government.

·         401K company contributions became very restrictive or disappeared. These were changed from contributions that the company gave to everyone, to a matching contribution for the least paid employees, to a smaller contribution for the least paid. The loss in middleclass value is 3 – 10 percent per year.

·         Pension plans first got smaller then disappeared altogether. These were replaced by 401K plans that were much cheaper for the companies. For many, the company made a contribution only if you made one first. The loss in middleclass value is 5 – 15 percent per year, and higher the closer the employee gets to retirement age.

·         Medical and dental plan payroll payments from workers went up as the company contribution went down. Employee co-payments also went up having a dramatic effect on middleclass value. The loss in middleclass value starts at 10 percent and keeps increasing the more kids the employees have and the more doctor visits they make.

The reduction in middleclass employee value didn’t stop with these benefit reductions. Large corporations, now making record profits wanted more.

Some large corporations moved their corporate headquarters to other countries to avoid paying any income taxes.  The middleclass made up the shortfall in the form of increased fees for government services, increasing social security and Medicare payroll payments, increasing state, real estate and school taxes…

Manufacturing in the US was replaced by inferior products made overseas.

Jobs in the US began to disappear to be replaced by low priced workers overseas.

Banking fees skyrocketed hitting the middleclass, who kept going below the minimum, the most.

Products became more expensive as their quality went down.

Food products became more expensive, either with direct price increases or indirectly, less product at the same price.

These corporate actions resulted in the replacement of trickle down with the flood up.  Large corporations, their senior executives, board members and large stock holders all got richer as the middleclass had to start borrowing more. Money was being taken at an accelerating rate from the middleclass and going to the rich and super rich. Any money that trickled down was trickling down overseas, where these large corporations were expanding and the rich were investing.

There were no politicians or news media outlets screaming at the loss to the middleclass.  Politicians in fact had to change some of the middleclass protection laws to allow much of this to happen. President Bush changed the pension laws that allowed companies to eliminate them altogether. He also changed the bankruptcy laws so that they couldn’t wipe out their debt, and had to keep paying credit card and student loan debt. Credit card debt and student loans, which carry higher interest rates than mortgages, ensured that the middleclass would be indentured servants for life.

Why was no one complaining when the money kept flowing from the middleclass to the rich? The rich were actually getting praise for amassing this wealth as the middleclass were ridiculed for amassing so much debt. This redistribution of wealth from the middleclass to the rich went unabated until the middleclass could borrow no more and as a result, were now the poor.

The flow up has been stopped for now, because the middleclass cannot borrow any more money to give to the rich. Unless this is reversed and we have a flow down and not a trickle down, history will repeat itself as it has done time and again every time the rich take everything from masses, and leave them without even a promise for tomorrow.

Why don’t any of these same people complaining about Obama’s plan to help the middleclass, question why the middleclass have no money and need to use credit to pay for gas and groceries? The ponzi scheme that Madoff pulled off is nothing compared to what large corporations and the rich have done to the middleclass and to the entire country. How long can you keep making the value of your workers paycheck lower and lower while lending them money to make up the difference? The middleclass are worse off now than at any other time in US history and will owe even more when they reach old age and can no longer work (retirement is out of the question for most middleclass).