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• No Phil Gramm? I’m either surprised, or have been misinformed about his role in the elimination of the Glass-Steagall Act and its importance.

  Posted by Zach P | November 26th, 2009 at 10:54 am

• Phil Gramm couldn’t have got Glass-Steagall repealed without the active support of the Clinton Administration, notably Larry Summers.

  Posted by Marshall Auerback | November 26th, 2009 at 11:01 am

• That would explain it, thanks.

  Posted by Zach P | November 26th, 2009 at 11:09 am

• Happy Thanksgiving to Zach and Marshall! You guys are part of what I’m thankful for today. Lynn

  Posted by FERI | November 26th, 2009 at 12:17 pm

• Today is a good day to give thanks and praise the Lloyd for all his blessings.

  Posted by Doug Terpstra | November 26th, 2009 at 2:05 pm

• That is hilarious, Doug! lynn

  Posted by FERI | November 26th, 2009 at 3:32 pm

• If I recall correctly, wasn’t Phil Gramm a leading opponent of regulating derivatives. And his wife Wendy was head of the Commodities Futures Trading Commission. In this role she exempted Enron from regulations regarding its energy derivatives. Later she sat on Enron’s board of directors and on the board of the Chicago Mercantile Exchange. I think the top 10 list should be expanded to include these two. And you can call it “The Dirty Dozen”!

  Posted by Victoria Posner | November 27th, 2009 at 4:45 pm

• I love the Dirty Dozen idea! We should also get together a list of the heroes who have taken on these people, like Brooksley Born, profiled in Henry Liu’s piece.

  Posted by Nellie | November 28th, 2009 at 4:55 pm

• Why hasn’t the 30yr mortgage interest rate come down further, based on the inflation rate, as it has done during other recessions?

  Enclosed you will find my opinion and solution to this question and the underwater mortgage problem, which I sent to the HUD secretary.

  To Secretary Shaun Donovan:

  I am a retired economic analyst, economic scholar, businessman, financier, investor, author and former candidate for California Congress. I have over forty years in the financial world.

  The increasing number of foreclosures is weighting down our economic recovery. It is imperative to FHA and the GSEs and the economy, that they are decreased. Consumer’s confidence and financial condition must be improved if we are going to have a lasting economic recovery.

  Enclose you will find an economic paper I wrote that outlines a program that will improve our economy and decrease foreclosures and unemployment. It will help the financial condition of FHA, FNM and FRE.

  Mortgage Interest Rate At Historical High

  If there is one thing a capitalistic economy needs to operate efficiently is a means of exchange that is in balance with available supply. Leonard C. Tekaat

  The private financial industry has failed to bring mortgage interest rates down sufficiently, to help the economy recover from the deepest recession our economy has experienced in 70 yrs. With the Fed funds rate at near zero, the 30-year fixed rate mortgage rate should be much lower. From 1993 to1998, to pick a period that the economy was operating fairly well, the 30yr fixed rate mortgage interest rate was approximately 100% above the Fed funds rate. The Fed funds rate was approximately 3.5% and the mortgage interest rate was approximately 6.5%. The inflation rate or Consumer Price Index was approximately 3.5%. The fixed rate mortgage interest rate was approximately 300 basis points above the Fed funds rate. Currently the Fed rate is at near zero, the 30 year fixed rate mortgage interest rate should be at about 3%, which is 300 basis points above the Fed funds rate or 300% above the inflation rate.

  One of the primary problems with the housing market is that the 30yr fixed rate mortgage that is currently being offered to the public has an interest rate that is too high to sufficiently increase consumer’s purchasing power. Before the current economic crisis occurred the same mortgage interest rate was approximately 6.5%. The current interest rate for the same mortgage is approximately 5%. The spread between the interest rates is not wide enough to warrant the cost of a majority of people with mortgages to refinance. If these people refinanced their mortgages at 3%, it would lower their monthly mortgage payments, there-by increasing their purchasing power. With more purchasing power, the consumer would increase demand in the economy, which would stimulate the economy. People do not have sufficient purchasing power. This is reflected in the fact that unemployment and foreclosures rates continue to rise.

  With a spread of over 475 basis points between the Fed rate and the interest rate of a 30yr fixed rate mortgage, the only entity whose financial condition is improving is Wall St. investment brokerages and the big banks, which have ties to those brokerages. All money is returned to the banking industry after it is introduced into the economy. If the money were lent to the people with mortgages, at a lower starting interest rate, it would help the banks and the economy.

  With the economy faltering because of a lack of consumer demand and investor and consumer confidence in the future, a stimulus is needed to include the consumer in the economic recovery.

  To bring down single-family mortgage interest rates the government should encourage the creation of a mortgage or create a mortgage with a starting interest rate of 3%, to stabilize home prices, increase employment, and stimulate the economy with increased demand. A Stimulus Mortgage should be created. We need to change the terms of our mortgages so Fannie Mae (FNM) and Freddie Mac (FRE) can buy and securitize the new mortgages with a lower beginning interest rate. With fewer foreclosures the Federal Housing Administration (FHA) would not have as many claims and its financial condition would improve. The down payment should be at least 5% of the purchase price. The Zero Inflation Taxation Policy should also be enacted to help prevent another housing bubble. (More on this later)

  Lower starting mortgage interest rates would be better for our economy than tax credits. Tax credits decrease government revenues, which increases the deficit. The government has to borrow more money, which has to be paid back either by a tax increase or an inflation tax. A smaller federal deficit and an improving economy would calm the world’s fears of a weak dollar and another round of inflation and higher interest rates. As our economy improves the dollar would strengthen, stabilizing commodity prices. The Stimulus Mortgage would create more economic activity by a greater number of people than tax credits. A tax credit takes purchasing power from one person and subsidizes the purchase of the home by another person. The tax credit is unfair and decreases the other person’s purchasing power by increasing their tax burden.

  When the financial crisis occurred in September 2008 the Fed and Treasury helped the economy by using the TARP money to stop the financial sector from collapsing. The financial service industry is now in much better condition. It is Main Street that is now in need of a shot in the arm to get well. It can be done without costing the taxpayer any money.

  Lower starting mortgage interest rates, funded by the Treasury or the Fed would not cost the taxpayers anything, because after home prices stabilize and the economy improves, the mortgages can be sold to private investors. The Fed will do this with all the mortgage-backed securities that they have bought in the last year. If the Fed had been buying mortgage-backed securities that included the Stimulus Mortgage I believe our economy would have improved more than it has in the past year. As the economy improves, without inflation, the dollar will strengthen, which will help stabilize commodity prices.

  Banks and financial institutions are not confident with loaning money to homeowners to refinance their homes, for new mortgages, or make a loan modification, when home prices are decreasing. If a 30 yr. adjustable rate mortgage was created with a starting interest rate of 3%, this would jolt the economy back to life, the toxic securities will become valuable again, as they become performing assets and home prices stabilize and then slowly appreciate.

  The interest rate on these new mortgages should increase one-quarter percent per year and cap out at the currant market rate of 5%. To decrease defaults on mortgages, the borrower would have to qualify at the 5% interest rate to obtain the loan. These new mortgages should not be tied to any index. People do not trust indexed mortgages because of our recent history and the uncertainty of the future. We can cap the mortgage interest rate at 5% because the Fed will not be the only entity that will be controlling inflation and inflation psychology. Read Alternative Economic Stimulus Plan and Zero Inflation Taxation Policy at http://www.economysflaw.wordpress.com/

  We are currently trying to capitalize the banks by infusing money directly into them. This policy is wrong because the collateral is losing value. As the value of the collateral decreases the banks need more capital to stay viable. The value of the collateral must be stabilized first, for the banks and investors to be confident enough to lend money against it.

  What will this stimulus mortgage do for the economy? When the homeowner refinances their home from a 6% mortgage interest rate to a 3% interest rate their monthly interest payment will decrease by 50%. A $1500.00 monthly mortgage interest payment will decrease to $750.00. That will be like the person receiving a $750.00 stimulus check each month for the first year and thereafter a little less each year for the next seven years. Multiply this by millions of people and you will have a stimulus plan that puts the purchasing power were it should be, with the people. The foreclosed property inventory would be quickly sold and housing prices would stabilize. Loaning money to banks does not create demand in the economy, people do!

  If mortgage interest rates were available at a starting rate of 3% and the borrower was qualified at a 5% interest rate, the chance of a foreclosure would be close to zero. The eight years it would take for the interest rate to rise to 5% would allow the economy to heal. Business activity would increase; this would increase the value of commercial properties reducing the coming crisis in that area of the economy. With home values stabilized investors will be willing to invest in mortgage backed securities again rather than treasuries. With the mortgage interest rate increasing every year, the investor will know that their rate of return will increase for the next seven years unlike treasuries.

  Mortgage interest rates historically have been about 100% above the inflation rate for the last 30 yrs. With inflation at 0% and home prices deflating, mortgage interest rates for the last year have been about 5 to 6% that means they are 500% to 600% above the inflation rate!

  With the enactment of the Zero Inflation Taxation Policy this policy will help control inflation and inflation psychology. This policy will maintain the lowest possible interest rate and the chance of another housing bubble would be near zero. Low interest rates will help maintain the value of the mortgages and mortgage-backed securities. Investor will be confident enough to make long-term investments in mortgage-backed securities, which will create a market for 30-year mortgages. (Go to web site to read about this policy change and its benefits.)
  Banks and investors should be encouraged to modify the underwater mortgages by changing the tax code so that it would be beneficial to them and the borrower when the excess amount of the mortgage is reduced.

  Until all the underwater home mortgages are modified the economy will not fully recover. We need the owners of these homes to be able to participate in the economy to increase economic activity. To modify their mortgages we should use a modification agreement, not a refinancing agreement. For those people who own a home that the mortgage is greater than the currant selling price, a clause should be included in the modified mortgage agreement that states, the bank will discount the mortgage, an amount equal to 20% of the monthly payment, each month, for a maximum of ten years, or until the selling price of the house plus repairs equals the amount of the mortgage, if the borrower agrees to pay off the entire unpaid balance due. This policy would allow for an orderly decrease in mortgage balances that are above the selling price of the home and more people would elect to stay in their homes and pay their mortgages.

  Posted by Leonard C. Tekaat | November 29th, 2009 at 9:41 pm

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