The dance the government and the banks have been doing is about to get interesting

[AllentownJake]

This week Barney Frank fired off a letter asking the larger banks to write down their second lien Mortgage claims.

http://beforeitsnews.com/news/23039/Barney_Frank_Asks_Top_Four_Banks_To_Write_Down_Second-Lien_Mortgages,_Claims_Have_No_Economic_Value.html

Well here is the interesting thing about this. A significantly delinquent second lien is worthless on an underwater property. The lien has no value, because the first mortgage has priority over the asset. If you sue the person, if they are in the financial shape that they aren't paying their liens on their homes, chances are they declare bankruptcy and walk away.

Why than are the banks reluctant to write down these loans. Mark to Market accounting being repealed. The minute they recognize that the second loans are worthless, the banks have to impair their assets and that hits their capital structure.

http://www.huffingtonpost.com/2009/03/05/mark-to-market-accounting_n_172301.html

Now Frank wasn't keen on poking his nose into accounting standards boards businesses but Kanjorski was, and the Accounting Standards board was bullied into making the change a long with temporary suspending a rule change that forces off sheet liabilities onto balance sheets. Frank allowed the hearings and allowed the bullying.

When you allow an asset that is worth less than what it was paid for to sit on books in an industry that is required to meet standards on reserve of assets, you are going to have resistance to write down those impaired assets because it means raising additional capital.

This is coupled with the fact that the President's modification program has largely been a failure, and again this is primarily due to the fact there is no force behind the program and that it asks banks to do something that is against their interest.

The banking lobby is fighting all the reform bills to fix the broken system, and the home mortgage industry is mostly being funded by the federal government through GSE that are insolvent and have been taken over by the government and government agencies.

Small business lending is non-existent for two reasons.

1) There is going to be increased defaults in commercial real estate as people try to refinance property that has decreased in value.

2) As the FDIC takes over 4-5 smaller banks that have become insolvent a week, the healthier banks have learned that hoarding cash reserves makes them the most likely banks to take over the deposits and good business of their competitor. There is no reason to take on risk, when the FDIC is going to hand you business, and money to cover losses on the bad business.

Political Lesson

In 2009 extraordinary measures were taken to "save" the banking system. Nothing was "saved" because the underlying problems were not cleaned up and money was handed to the same parties who screwed up in the first place.

Let us all remember this incident and mistake of history as we watch the finger pointing between the government and the banks continue.

In my opinion, they are both to blame for this mess we find ourselves in right now.

Weak government action in cleaning up, resistance from the banking industry to change it's ways after they collapsed.

[AllentownJake]

1. Kick

[Echo In Light]

2. k/r

[AllentownJake]

3. Kick

I want people to read this.

[formercia]

4. Maximizing profit

Reserve of assets is not welcome on Wall Street because it ties up capital that could otherwise be used to generate profit. It's much easier for the Banks to socialize the risk, knowing that Bernanke is there to offload their risk onto the public.

Then there are insurers like AIG, willing to sell them bogus insurance to cover potential losses. AIG in cahoots with Bush Gang, has been playing this Control Fraud insurance scam for decades. It was only a matter of time before the music stopped with nonexistent chairs.

This is organized crime, plain and simple.

[xchrom]

5. Recommend

[Raineyb]

6. Kick

This needs to be out there. Although I fear that the DLC brown-nosers will probably unrec it to hell then start posting ignorant and abusive posts in response.e

[bvar22]

7. Thank GAWD it passed!!!

NOW we have Your Children’s Money too !!!
And there is not a fucking thing you can do about it!
Now THIS is “Bi-Partisanship” !
Better get used to it!!
Hahahahahahahahaha!



The same crowd is screaming the same thing about the Senate HC Bill.