Beginning in 2009, President Obama agreed to legislation designed to provide mortgage help for millions of homeowners around the country. The government will provide about $75 billion dollars to help people hold onto their homes through a variety of different plans.

When the economy took a nose dive, many people found themselves out of work or having to take serious pay cuts. This meant that some people found it very difficult to keep up with their mortgages. For the first time since the Great Depression, Americans in such large numbers had to turn to foreclosure in order to take care of their families.

Now, with a new administration in the White House, there is another mortgage help program so that more people will be able to hang onto their precious homes. The new bailout program for homeowners is called the Homeowner Affordability and Stability Plan (HASP).

This plan is designed to help people refinance their homes and to provide incentives to lenders to provide mortgage modifications. While previous plans have failed to provide the kind of results politicians were looking for, maybe all that was needed to change the course of the economy was a focus on platitudes of hope and change.

There are, essentially, two populations who can take advantage of this program. The first group is people who have been able to maintain their mortgage payment but who are struggling as a result of economic conditions. The second population is those people who have fallen behind in their mortgage payments.

If you have been able to maintain your mortgage payments, you may qualify for assistance in the form of refinancing your home. Normally, in order to refinance a home, you have to have at least 20% equity in the home. Under the HASP you do not need to have any equity at all in your home. In fact, you could even have a slightly negative equity and still qualify.

You may also qualify for mortgage help if your home is no longer worth what you owe. This may help a significant percentage of the real estate market qualify for the new plan, as home values have fallen so dramatically. However, you cannot have more than a negative 5% equity or difference in the home’s value in order to qualify for assistance.

The amount owed on the mortgage is also a consideration for the new program. You cannot owe more than $417,000 on your home. Home loans over that amount are considered “jumbo” loans and do not qualify under the HASP.

If you have fallen behind in your mortgage payments, you could qualify for mortgage help in the form of a government-assisted loan modification. This means that your loan will be slightly modified in order to bring down your mortgage payments.

If you qualify for a mortgage modification, you must remember that this may be for a very specific time frame. At the end of the period, your mortgage payments will slowly go back up to the original amount. However, you will not owe any back payments, as long as you successfully complete the plan.

With this form of mortgage assistance, you must qualify as a high level debt borrower. This means that every month you pay more than 55% of your monthly income on bills. These bills include your mortgage payment, car payment, and any other bills you might have such as credit cards.

After your loan modification, your total monthly output for your mortgage bill should be less than 31% of your monthly income. Lenders and mortgage servicers must help reduce your payment to 38% of your income, while the government will subsidize the mortgage to reduce the payment down to the 31% required amount.

If you qualify as a high level borrower, you will be required to attend some debt counseling courses certified by the Department of Housing and Urban Development. Additionally, the amount you owe on your home without interest must be less than $279,750.

With mortgage help in any form from HASP, the home must be owner occupied. This is because this government help is meant for families, not for investors and speculators, even if they are providing housing to tenants who can not afford to purchase their own home.

All loans must be owned by either Fannie Mae or Freddie Mac. If you are not sure if your loan is owned by either company, you can ask your current mortgage servicer. Additionally, you can go to www.fanniemae.com, www.freddiemac.com, or www.FinancialStability.gov. There are links at all of these sites to help guide you through the process of applying for mortgage help.

Something else to keep in mind is that the Homeowner Affordability and Stability Plan is not going to be available forever. The plan is scheduled to terminate in December 2012. Homeowners who wish to examine their options should not wait until the last minute, even if it is three years off. The foreclosure process can take much longer than people expect.

The first step you must take in determining if you qualify for mortgage assistance is to contact your lender. There are a number of forms that have to be filled out, and it does take some time. Keeping on top of the application process is often the most difficult, as servicers are notorious for losing paperwork and forcing borrowers to start all over.

When you contact your mortgage lender, you will need to have a number of documents available: monthly mortgage statement; Homeowner’s Association statement; pay stubs; W2s; income tax return; car loan paperwork; student loan documents; credit card statements; any loan statements which are tied to the house such as a second mortgage, judgment lien, or home equity loan; and a profit and loss statement if you are self-employed.

You should have the most recent statements available before you contact your lender. Lenders can and will return your application if any of the paperwork is not the most recent available at the time you request help. In many cases, they will simply put your file on hold until you call and ask for a status update, at which point you will be told your paperwork was incomplete.

Although the process of obtaining a refinance or modification can be a huge project, getting mortgage help is definitely much preferable to facing foreclosure. Few homeowners really want to lose their homes if there are viable alternatives.

As mentioned in a previous article, it can be very difficult for homeowners facing foreclosure to raise certain claims in court when the bank holding their loan has failed and been taken over by the Federal Deposit Insurance Corporation. Case law and federal statute give the FDIC broad immunity against a number of claims that could be raised by borrowers in regards to loans held by the failed institution.

However, there are also a number of exemptions to the broad immunity the FDIC enjoys. Four of them are significant and worth examining here, as homeowners in foreclosure may be able to use them to bring claims against the FDIC or successor financial institutions.

The first is called fraud in the factum, and refers to any case when one party to a transaction reasonably relies on a misrepresentation by another party. The misrepresentation will be as to the character or essential terms of the contract. Examples include alteration of a document or forgery. The FDIC nor its successor institutions are immune to claims of fraud in the factum, so homeowners may be able to bring these issues into court.

Second, Truth in Lending rescission claims are still allowed despite the FDIC's immunity protection. In fact, the Truth in Lending Act states that a borrower's rescission rights continue regardless of assignment of the loan or to whom the loan is assigned. This means that, even if the lender fails and the note is taken over by the government, rescission may still be an option if the other requirements under the statute are met. FDIC receivership of the bank's assets will not affect the claim.

Also, the FDIC does not have immunity protection from any transaction that is void. The federal statute granting FDIC immunity is intended to protect the government's interests in assets is acquires from the failed banks. A void transaction, though, does not create an interest in an asset, and the immunity protection can not be extended to assets in which the FDIC has no valid interest. In cases such as fraud in the factum, the transaction may be declared void, for instance.

Finally, there is a rule called the FTC Holder Rule that was designed to protect credit consumers from holder-in-due-course immunity, such as the FDIC has been granted. For this rule to apply, though, an FTC Holder Notice must be included in the consumer credit contract. It will be included in many transactions relating to a sales transaction. This might be a home improvement contract or other similar agreement. If the notice is included in the contract, the FDIC's immunity may not apply.

While the above defenses to broad FDIC immunity have survived most course, other claims have survived in a smaller number of cases. These include such issues as breach of contract, failure of consideration, challenges to the validity of a lien, homestead issues, unreasonable foreclosure sale, and state statutes regarding Unfair and Deceptive Acts and Practices. Homeowners should do their own legal research to determine if their claims may survive, or consult with a competent foreclosure attorney.

When homeowners find that they have become a mortgage customer of the government, falling into foreclosure can become extremely complicated. While the FDIC has taken some steps to assist borrowers in stopping foreclosure, the agency is granted broad immunity from many claims that may have been used to defend against the loss of the home in the first place. Thus, borrowers should educate themselves in regard to the issues surrounding the FDIC's administration of mortgage loans and foreclosure.

With the significant increase in bank failures due to the financial collapse of 2008, more loans are being taken over by the Federal Deposit Insurance Commission. While the government stepping in may make the transition of loans from failed banks to solvent banks a little easier, in cases of default and foreclosure the situation can become more complicated.

In 1942, the Supreme Court decided that any secret or implied agreements would be precluded that had the effect of reducing or diminishing the FDIC's interests. This has come to be known as the D'Oench, Duhme doctrine, and has been further codified into the federal statutes.

In many cases, if a bank transfers its assets to another financial institution or corporation, homeowners will be able to bring claims against the original lender or the assignee of the mortgage and note. But when a bank fails, it is taken over by the FDIC, a government agency which is granted immunity in many cases.

Federal regulations give the FDIC immunity from a number of claims. Homeowners may be unable to bring any claims against the FDIC for assets of the failed bank unless the agreement is in writing and meets a number of other requirements. These requirements are the following:

No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 11, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

(A) is in writing,

(B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(D) has been, continuously, from the time of its execution, an official record of the depository institution.

There are also a number of additional common law doctrines that smaller courts have relied upon when granting the FDIC immunity from homeowner or debtor lawsuits. These are termed "super holder-in-due-course" or "federal holder-in-due-course" doctrines, and allow the FDIC to claim holder-in-due-course status even if it does not meet the requirements for such status under the Uniform Commercial Code.

This immunity also typically extends to any future financial institution that purchases the assets of the failed bank from the FDIC. In most cases, the government only temporarily takes over the bank, makes sure it can keep operating for the short term, and then sells the remaining assets to other banks. Companies that purchase mortgage loans or other debts will be given immunity from claims that the FDIC would be immune to, making it even more difficult for borrowers to hold anyone accountable for actions taken before the bank failed.

Thus, homeowners may have a very difficult time bringing claims against the FDIC for the actions of the failed bank. However, there are a number of exceptions to the broad grant of immunity. Although they may only apply in a small number of cases of foreclosure, it is worth the effort for homeowners to look into these exemptions and find out if their claims against the original lender or failed bank may survive the FDIC receiving the bank.

The government's programs to help stop the foreclosure crisis were probably started with the best of intention. Good intentions, however, can not cover for economic ignorance and an unwillingness to face the facts of the housing market. Prices are declining and more people are facing foreclosure due to the poor lending decisions created by cheap easy money and the erosion of lending standards.

As well, many of the government's programs suffer from the same problems. Unfortunately, with each failure, the programs are not canceled. Instead, they are further funded, grow bigger, change names, or a similar plan with only superficial changes is layered on top of the old one. The old plan loses steam, while the next one, almost identical to all previous ones, is announced with far greater optimism than is deserved.

But the problems are never solved. Voluntary participation, unaccountability, lack of responsibility to do anything by the lenders or servicing companies, lack of penalties for not complying with the regulations, and all the power given to the banks are just a few of these problems. They have been the same complaints from consumer advocates and homeowners from the very first plan put in place by the government.

Servicing companies and lenders, for instance, have almost all of the negotiating power that borrowers do not have. When lenders are given the choice of participating in the voluntary government programs, compliance is often lacking and few resources are dedicated to meaningful loss mitigation efforts. The lender decides how much to participate in the plan and has all of the financial power.

The government programs, mandatory or voluntary, also impose few rules for compliance. While servicers have some responsibilities to negotiate with homeowners, the level of participation is often very lacking. Borrowers who have ever tried to communicate with a bank know how frustrating it is when the bank loses faxes numerous times and never returns phone calls, all to be turned down at the last second.

Even if the bank does absolutely nothing to help the borrowers, whether required to or not, how can the lender be held accountable? Unfortunately, it is only in the courts that the consumers can state their claims, and many borrowers try to negotiate for a loan modification or other solution in order to avoid going to court. Especially in nonjudicial states, going to court to enforce a potential negotiation plan may not make sense.

Court-mandated negotiations have also failed to materialize as a widespread solution to foreclosure, as the banks have been able to block legislation that would allow bankruptcy judges to modify the terms of first mortgages or reduce balances. Some states and certain courts, however, have begun to scrutinize foreclosure cases more carefully, which may work out in homeowners' favor more often.

Unfortunately, the problems associated with the government's programs to avoid foreclosure have far outweighed any benefits to the small number of borrowers who have received assistance. Three hundred billion dollars to help one borrower, as was the case with the Hope for Homeowners program, probably helped create more foreclosures than the one it fixed. The only real question is if more regulation and legislation is what is needed to fix the programs.

When the government gets involved in a particular segment of the market, it often creates distortion and waste, as well as providing services that may not be needed or desired by the target markets. Also, since there is no incentive to maximize returns or keep costs down, the programs can cost far more than the benefits they bring to one group or another. And worst of all, funding such central planning schemes is always involuntary.

The government's programs over the past few years to stop the foreclosure crisis have all been excellent examples of bad ideas with overly optimistic promises that soon failed. Many of these programs were designed to assist borrowers in negotiating with their lenders for loan modification plans or other solutions. While no homeowner was given the choice to fund the plans or not, the programs encouraged only voluntary participation by lenders.

No wonder they all failed. Homeowners and consumers in general were forced to pay hundreds of millions or billions of dollars to fund programs to stop foreclosure, while the lenders and mortgage servicing companies did not have to participate in actually offering assistance. More resources were diverted from the people who were struggling with their bills in order to pay bureaucrats to encourage lenders not to take advantage of borrowers.

All the while, the banks were also taking hundreds of billions of dollars in free handouts as their reward for taking advantage of borrowers. Blackmail and threats to destroy the economy if they did not receive one bailout after another convinced lawmakers to reward the banking industry for its moral hazard and poor lending decisions. As a consolation prize, homeowners facing foreclosure got robbed more and were shown a few half-hearted modification programs.

HOPE NOW, Project Lifeline, Hope for Homeowners, bankruptcy cram-down provisions -- all have failed to affect the high foreclosure rates and falling home values in any meaningful way. And even if the programs had not existed at all or had been funded at twice the level they were, very little would have changed. The fact that so many players in the real estate industry took advantage of the cheap money from the Federal Reserve now means that a correction will have to happen.

Now the newest program is the Obama administration's Making Home Affordable Modification Program (HAMP). Although this latest plan requires participation by some lenders and servicing companies, it is still facing some of the other problems which plagued earlier plans. There is little oversight, no accountability, and evasion of obligations under the plan by the mortgage servicers.

Can one more government program, department, or regulatory agency really save the country from an economic crisis caused by too much government involvement? Or are all these programs just excuses to give the feds and the banks more control over the economy while pretending to solve problems? Do we keep spending trillions of dollars to rewards the banks and hundreds of millions to help homeowners?

In 2009, the Congress and the Obama administration revealed their newest plan to help families save their homes from foreclosure by encouraging mortgage modifications. This plan, called the Home Affordable Modification Program (HAMP) was designed to create broad guidelines for the mortgage industry on modifying loans, as well as provide incentives to lenders and services to offer modifications.

Participation in the HAMP plan, as with most of the other federal foreclosure help programs, is voluntary for most servicing companies and lenders. Many of the largest servicers, though, have signed agreements to engage in the program. Companies that received funds from the government under the Financial Stability Plan are also required to participate in the program, along with Fannie Mae and Freddie Mac.

One of the main benefits of the program to homeowners is that it essentially requires participating mortgage servicing companies to review the eligibility of homeowners for a loan modification before being able to conduct a sheriff sale. In fact, servicers participating in the HAMP plan should not even begin the process of foreclosure until the review has been complete and the borrowers have been determined to be ineligible for a modification.

Loss mitigation efforts are required under the plan, and the guidelines for loss mitigation are similar to those required for FHA loans. In cases of default of an FHA loan, the servicer is supposed to negotiate with borrowers for an alternative to losing the home. The same is true with the new HAMP program, as both plans are designed to help homeowners remain in their properties at affordable rates.

Due to this program, there are a few new defenses to foreclosure that homeowners may raise due to a lender or servicing company's failure to comply with the requirements of the program.

For instance, if a servicing company participates in the Home Affordable Modification Program but does not review a borrower's financial material to determine whether a modification will make sense for the investor and the homeowners, the foreclosure should not be allowed to move ahead. The failure to comply with the guidelines of HAMP before foreclosing may mean that the homeowners are not even in default of the mortgage contract.

Also, the Congress, in the regulation itself, has declared the HAMP guidelines to be "standard industry practice for purposes of all Federal and State laws." This means that a lender's failure to comply with standard industry practice should create a defense to foreclosure that homeowners can raise in court. Unless prohibited by the pooling and servicing agreement itself, lenders are now required to follow HAMP guidelines.

Thus, because of the new regulation that the Obama administration has put into effect for the residential mortgage servicing industry, homeowners may have additional opportunities to qualify for a loan modification or defend their property from foreclosure. Although many of the government foreclosure assistance programs have failed to deliver so far, it is possible that borrowers can use these laws in self-defense, if not actually to qualify for workout solutions to save their homes.

Regulation Z, commonly known as the Truth in Lending Act, is supposedly designed to protect home buyers and owners from unfair and deceptive practices by mortgage lenders. Various regulations must be adhered to by the banks, mostly in regards to disclosure requirements. New amendments coming into effect on October 1, 2009, however, show just how ineffective laws are in restraining financial companies.

There are three main practices that the new rules prohibit lenders from engaging in for any mortgage applications taken after October 1, 2009. While it may seem painfully obvious why lenders should not engage in these acts voluntarily, it is no secret that the subprime industry was built on them. With the new amendments to the Truth in Lending Act, the following actions by lenders are no longer allowed.

First, banks can not make a loan regardless of the loan applicants' ability to pay back the mortgage from any other income than can be generated by the home's value. Thus, banks can not hand out mortgages to people without jobs or income, and then allow them to flip the property a few months later to avoid going into foreclosure. This scheme only works with artificial pumping up of a housing market.

Second, if a bank fails to verify income and assets that the homeowners are relying on to repay the loan, they have violated the new amendments. Of course, there seems to be no sane reason why a lender would not go to the trouble of making sure the people it gives money to have a real ability to pay back the loan. However, the banks did engage in this practice, and it is now prohibited.

Finally, the banks are no longer allowed to change prepayment penalties, except under certain circumstances. While this practice of increasing prepayment penalties was not as much a contributing factor to the subprime crisis as not verifying income, it does make it more difficult to sell a house. Huge prepayment penalties make it necessary to sell at a higher price than if the penalty was not present or increased later on.

The subtle hint Congress is sending to the banks is essentially a public relations message. In any kind of capitalist, free market economy, the banks would not have made all these poor lending decisions to begin with. There would have been no good reason to take on the huge risk of making and securitizing loans that would never be paid back, putting the financial companies themselves at risk of bankruptcy.

However, the banks knew for certain that, if the bubble ever burst, they would be bailed out by the politicians. So they engaged in practices like handing out inflated Federal Reserve money to homeowners and then, once the real estate market collapsed, began to receive taxpayer-stolen funds almost immediately. One bailout after another was given to Wall Street investment firms and commercial banks.

But the bailouts were not popular with homeowners, the people of America in general, or foreign investors in US debt. So Congress, instead of denying bailouts to the banks, has instead come up with a set of new regulations designed to limit how much more money the taxpayers will be forced to give Wall Street in the future for this particular scheme called "subprime loans."

Congress is telling the banks, "Here is the money you blackmailed us for after destroying the economy, but you can no longer engage in these particular frauds." But if the bailout had never been implicit, or even acted upon, these new regulations would be totally unnecessary. Banks have incentives not to defraud depositors, borrowers, and investors. But with guarantees in case of loss, those incentives disappeared.

One of the biggest boons of the mortgage servicing industry was the securitization of mortgages beginning in the 1970s. With lenders selling off newly originated loans, the servicing industry grew as the investors in mortgages did not want to deal with the administration of collecting payments, dealing with refinances and title issues, and foreclosing on homes when necessary.

Until the 1970s when securitizing mortgages after origination became more common, there were few banks that sold their loans into the secondary market. Instead, lenders held onto the loans they made and collected the interest. If they sold the loans at all, the original lender would often retain the right to collect and apply the payments, in effect becoming the servicers themselves.

All of this began to change, however, during the late 1980s, and the growth of the mortgage servicing industry was a direct result of the government's response to the Savings and Loan crisis of the late 1980s and early 1990s. These institutions had made so many bad loans that the federal government created a whole new bureaucracy to deal with the fallout and dispose of properties.

The Resolution Trust Corporation was created in 1989 by the first Bush administration to sort out the assets of failed Savings and Loans and begin to sell them to investors. However, one decision that the RTC made when selling the assets of these bankruptcy banks made a huge impact on the structure of the mortgage industry and almost single-handedly created the servicing industry as it is today.

This decision was to sell the loan portfolios of the S&Ls and the rights to service these loans separately. Until this point, there was really no specialization in the mortgage lending industry for companies just to retain the servicing rights on loans. But with the RTC selling rights to collect payments separately from the loan portfolios themselves, the mortgage servicing industry was given a huge shot in the arm.

In fact, the predatory nature of the mortgage servicing industry, where servicers are encouraged to add more fees and charges to a loan, including driving homeowners into foreclosure, was created by the Resolution Trust Corporation. Although the industry has done a poor job of policing itself and attempting to reduce the incentives for abuse, the government is responsible for the frauds perpetrated on homeowners.

Today, mortgages are bought and sold numerous times, and the servicing rights are also transferred from one company to another. But while the servicer's name may change, the abuse practices always remain the same. Borrowers with more equity are routinely targeted for forced insurance, misplaced payments, missed property tax payments, and other coercive practices.

Unfortunately, too many homeowners are relying on the government to fix the problems in the housing market. But the last time the feds attempted to do this, by creating the mortgage servicing industry's practices, the end result was homeowners being taken advantage of and pushed into foreclosure. Without the RTC's pricing model for servicers, fewer homeowners would be losing their homes now.

One of the consequences of building a business model on the assumption of perpetually rising housing prices is that, when those values stop rising and actually begin falling, it becomes increasingly difficult to stay in operations at the previous bubble level. Local governments are finding this out the hard way, as they struggle to generate revenue through property taxes in the midst of high foreclosure rates.

Homeowners who end up facing foreclosure can expect to pay an average of over $7,000 if they get back on track. This includes administrative fees the bank charges, late fees, legal fees, foreclosure costs, accelerated interest, and whatever other junk fees the bank can come up with. While this seems like a large amount of money, it is a small sum compared to how much the typical foreclosure costs the local government.

When a house goes into foreclosure and the lender ends up purchasing the house back at the auction, it often sits empty and falls into a state of disrepair. The longer it sits on the market with no buyers, the more it will deteriorate and the more drag it will have on local property values. The government will also be expected to provide services to the property even though it is generating little, if any, property tax revenue.

Just to keep up on the property, including utilities, sewer and water services, upkeep and maintenance, and property taxes, local governments lose an average of $20,000 per foreclosed house. During the boom, these same properties may have generated thousands of dollars per year in taxes and service charges while requiring no government involvement in maintenance or upkeep.

Local governments, therefore, should be expected to do whatever they can to attempt to change this new outflow of funds and loss of tax dollars when homeowners are unable to stop foreclosure. Unfortunately, instead of cutting back on salaries or staff and cutting tax rates to encourage new buyers to purchase these foreclosed homes, counties and cities have turned to coercion and violence to make up budget shortfalls.

Thus, there are more speed traps to hand out tickets to drivers putting no one in danger but operating a vehicle in a manner contrary to bureaucratic opinion. Parking meters in large cities are more expensive, run fast, and fill up sooner, while drivers receiving parking tickets anyway. Property taxes stay the same, if not rise, during the depression, which discourages properties in the area from being sold.

More rules, regulations, fees, fines, taxes, and stimulus packages will not encourage a turnaround in the housing market or the economy. These just increase the burden private people have to bear to fund varying levels of government that are running out of money anyway. While all of us have to get by on less income and save more, politicians and bureaucrats believe that they can solve all the problems just taking and making more money.

But the more government services weigh down communities and the nation as a whole, the longer it will take for business and people to recover. The less money we all have to spend on the things we want, the fewer businesses will be able to provide those goods and services and the more unemployed people we will have. This is unfortunate, and the nation needs to shake off the burdens of government to recover.

For one reason or another, it seems that the United Kingdom is the training ground for the most diabolical seizures of government power that a people will withstand. Cameras everywhere, guns not allowed to be held by private citizens, police officers actually waterboarding drug suspects, and now a mass seizure of private vaults by the state have made watching news from England a most disturbing experience.

In the latest raid, the government seized over 7,000 safety deposit boxes owned by private citizens and have declared that 90% of them were being used in crimes. In fact, each box itself is treated as a separate crime scene by the UK police, and anyone who wants to get their belongings back will have to prove to the state that the contents were not involved in the commission of any crime.

Because the fact that proving a negative is impossible, most of the people who owned private vaults will end up losing the contents and be just that much poorer while the state gets that much richer from its theft. The government is claiming the right to seize a private person's assets on the belief that they may be criminal assets and then the individual has to prove that they are not criminal assets in order to have a chance to get them back.

The police in the United States have similar powers under state forfeiture laws, where they are able to confiscate the money, car, home, and other assets of suspected drug offenders. It is then up to the people arrested to mount a legal case (without the use of their assets) in order to get their private property back from the state. It is ludicrous and criminal to take someone's resources, then force them to prove in front of a judge working for the same gang that stole the assets that they should have them back.

Will the state eventually come for people's private property in their homes and their safe deposit boxes, as well? If the government really needs cash to keep funding its operations, welfare programs, security institutions, and taxing agencies, what is keeping it from invading homes, declaring any asset to be a likely criminal asset, and then just confiscating it and keeping it indefinitely?

At least in the UK right now, the state is claiming this right and sending in cops who do not know any better to steal from people. Mark Nestmann's blog here does a great job explaining how difficult it will be for the average person to get property back once it is taken by the state. In the most basic terms, whatever the government takes, you should never expect to get it back.

Does the increasingly smaller group of people who still have jobs and incomes and assets really need to live in fear of being preyed upon by the government that is supposedly providing them services? More parking tickets, speeding tickets, fines, fees, warrant "roundups," forfeiture laws, and now direct invasions of private vaults and safe deposit boxes are becoming increasingly common.

But in a country that routinely needs to come up with hundreds of billions, if not trillions, of dollars to bail out banks and corporations, it should be no surprise that the people will be targeted. It matters little that they are also running out of money, looking at potential unemployment or shutting the doors of their businesses, or being foreclosed upon. All that matters is the state keeps up its welfare payments and maintains its ability to use force.

Will blanket raids of private vaults for no reason make an appearance in the United States? To ask that question is probably to answer it. And for those who believe that they are innocent of owning any assets that were ever involved in criminal activity, it bears mentioning that 95% of all currency in circulation is tainted by residues of drug use. Do you have any cash on you at all? You're 90% guilty of a drug offense.

For some unknown reason, it seems that whenever banks or lawyers are involved, rules and laws and changed and reinterpreted at will. The same institutions and people who were tasked with preventing abuse or fraud from running rampant in the economy too often fail in their jobs. But the only reaction to these failures is to give the exact same regulatory agencies more power and money.

Take, for example, the new regulatory framework for the banking and financial industry that President Obama announced this week. The Federal Reserve, which created the housing bubble through artificially low interest rates, did not predict the crisis, refused to believe it was as bad as it was, and is now optimistic about recovery that only it sees, is being given more power to regulate the financial markets.

This is just what the country needs -- a semi-public, semi-private, secretive banking institution that is able to print money and raise or lower interest rates at will but which can not even see or predict the market bubbles that it is creating. The only flaw in such a system is that it just does not have enough power already, and therefore must be given responsibility for the system as a whole.

So the president wants to change the banking rules to give the Federal Reserve responsibility for managing systemic risk to the entire financial system and economy. This is the same institution that, if abolished, would go a long way towards eliminating systemic risk. Moral hazard and systemic risk have been institutionalized by the Federal Reserve system's policy of lowering interest rates and bailing out favored companies.

The rules, though, are always changed to give the government's favorite institutions more power, while the people have their money taxed or inflated away to pay for these new power grabs. In the end, these laws, the stated purpose of which is to protect consumers and borrowers, are always used against the same people they were written to protect. The more laws they write, the easier it is to find one to justify any action.

Most of these new changes and laws will be put into place for a small number of reasons. One will be to increase the profits of the banks and its government insiders during good times and to socialize the losses on a system-wide basis in bad times. Another purpose is to conceal the first purpose in a maze of new bureaucratic red tape and regulations. The more opaque the system becomes, the easier it is to fleece Americans.

Homeowners and consumers will be expected to pay the bills for these new regulations and profit-increasing schemes. Although borrowers and banks both entered into the housing bubble hoping to gain huge profits without working, only the banks went in knowing that any huge failures would also be rewarded with profits in the form of government bailouts. There was virtually no risk for lenders, as they got the houses and the payoffs.

Although there is nothing wrong with huge profits, the companies and individuals making large amounts of money can not expect the government to steal money from taxpayers in the event of a downturn in the economy. But the government also can not routinely bail out private corporations just because their failure would put some former bureaucrats out of a job and eliminate future board of director positions for politicians.

In the absence of the federal bailout policy, does anyone really think that banks would be able to run roughshod over the American people? Would banks be able to foreclose on millions of borrowers and still receive hundreds of billions of dollars care of the same people they are foreclosing on? But the banks rely on the force of government to make them whole, rather than negotiating with borrowers in the market to stop foreclosure.

After all, the only result will be more government jobs for banking regulators, more banking jobs for former regulators, and more power given to proven failures like the Federal Reserve system. Negotiating with borrowers for mortgage modifications? It is much easier just to foreclose, claim "systemic risk," and get in line for a bailout taxed or inflated away from the same homeowners the banks refuse to negotiate with.

The government, since the financial crisis began, has been offering one preposterous foreclosure help program after another in a blind attempt to keep property owners in their homes. All the while, the same banks and companies that helped set the mortgage market up for failure have been given essentially free handouts from Congress.

The latest government failure to be discovered is Fannie Mae's HomeSaver Advance program, which was begun over a year ago in February 2008. The brilliant plan was to allow servicing companies to give homeowners in financial hardships and facing foreclosure a personal loan. The idea was to give homeowners a line of credit they could tap into to pay their mortgages until they were back on their feet financially.

Hopefully, most people by now realize that a problem caused by too much credit and too little income can not be solved by more credit and an unchanged income. But this was the course of action that Fannie Mae embarked upon to assist borrowers in default of their home loans.

Now that Fannie Mae and Freddie Mac have become government run corporations, the failure of such programs costs American citizens directly, as they are providing some of the funds to bail out these companies and keep government foreclosure assistance operations going. And just as with a number of the other government solutions to foreclosure, Fannie Mae's HomeSaver Advance has been a disaster.

Close to 70% of the personal loans made through the program are redefaulting, putting the homeowners back into foreclosure. The only difference now is that they have even more debt to default on, and the American government has even more Fannie Mae debt on its balance sheet.

It seems that, with each new failure of a program to help homeowners in foreclosure, the American people have more of their money taken from them to provide additional funds to the companies or organizations offering the failing programs. And while all of these programs have benign-sounding names, they are offering little more than a false sense of security to borrowers who later fall back into foreclosure.

After the failure of this program, Fannie Mae has begun shifting its resources in the direction of mortgage modification programs, rather than extending personal loans to foreclosure victims. If the government's previous modification numbers are any indication, this move will result in an additional 10-20% of homeowners receiving assistance.

Of course, this still leaves 50-60% of homeowners receiving government sponsored or guaranteed modification programs back in foreclosure within six months. But at least it is not a 70% redefault rate, as with the HomeSaver Advance program.

Maybe, if the government comes up with enough foreclosure assistance programs, it will finally hit upon one that allows borrowers who can afford to pay their mortgages do so, and allows homeowners who can not keep their homes not become a huge drag on the housing market or economy in general. I am doubtful of this result, however.

Instead, the politicians seem to think that they can run the mortgage markets better than anyone, despite 50-70% redefault rates, allocating more than $300 billion to help a single homeowner, decrying "frozen" credit markets while imposing new limits on consumer lending, and taking resources from productive consumers to prop up bankrupt industries and companies.

But who knows? Maybe a relative handful of experts knows more about the economy than all the rest of us combined.

In a move which should be surprising to no one, the government is working on passing a new bill to give more power to previously-failed government programs and reward more financial institutions for engaging in fraudulent and predatory practices. The Helping Families Save their Homes Act of 2009 was passed by the House of Representatives this week and serves both of these purposes.

One of the main purposes of the bill is to loosen some of the strict requirements on homeowners and lenders to participate in the government's HOPE for Homeowners program. Since being instituted in 2008, the FHA-administered plan has been given close to $320 billion and has helped a single family facing foreclosure. This is so bad that even the government itself is disappointed with the results.

However, the bill also provides a safe harbor for mortgage servicing companies to protect them from liability. RealEstateRama reports that "The bill provides a safe harbor from liability to mortgage servicers issuers, trustees, loan sellers, depositors, and any other person to the extent the person’s cooperation is required to allow the servicer to engage in loan modifications, as long as the servicer provides a modification consistent with the Administration’s program or it utilizes Hope for Homeowners."

Mortgage servicing companies have been pushing undeserving homeowners into foreclosure for decades, and the documented complaints against such practices are nearly endless. But now, as long as these companies participate in a loan modification with government guarantees, they can be protected liability? It seems that such a provision will just encourage additional moral hazard on the part of servicers.

Many times, mortgage servicers have engaged in fraudulent actions designed to increase fees and interest for homeowners long before they fall behind on their mortgage. This raises the profits of the servicing company and the holders of the loan. Most of the time, these extra charges may go unnoticed forever, as homeowners sell or refinance and pay off the mortgage without examining how the final payoff was calculated.

But if a homeowner falls behind on their payments, sometimes as a result of actions such as placing forced insurance on a house unnecessarily, the servicer will immediately begin foreclosure as well as accelerate fees and interest charges even faster. It may be impossible for the owners of the property to prove to the company that the insurance is necessary or they are not even behind on payments -- the foreclosure continues anyway.

Even the threat of litigation has not stopped servicing companies from engaging in such frauds. After all, they have enough money to hire lawyers who can lie to judges anyway. Homeowners facing a financial hardship or living and working do not have the time or resources for such luxuries as taking advantage of the legal system to enrich themselves at the expense of others.

Mortgage servicing companies have always been reluctant to negotiate mortgage modification agreements with borrowers, as well. This is due to the fact that they make more money by not working with homeowners, rather than dedicating a portion of the servicing fees they receive to loss mitigation departments and staff. It is in the financial interests of the servicer to let the home go into foreclosure.

But now, with the passage of the Helping Families Save Their Homes Act, this may change. Servicing companies can still go ahead and fraudulently jack up fees or force insurance on a house and wait for the borrowers to fall behind. Once this happens, they can offer a loan modification in their interests -- not the homeowners' -- through the HOPE for Homeowners or other government program, and escape liability for the actions.

Where the report states a requirement that these modification programs meet guidelines "consistent with the Administration’s program or it utilizes Hope for Homeowners," it should be kept in mind that the government programs' redefault rate is over fifty percent. This means that the majority of people who get a government guaranteed modification end up back in foreclosure again within six months -- which is where the servicers want them anyway.

Many of the government's programs to help homeowners stop foreclosure seem to have good intentions on the surface, but each one also contains one provision or another that is a blatant handout to the banks and financial industry. This latest immunity from liability for servicing companies is just another example of how government actions are actually making the foreclosure crisis worse and encouraging banks and servicers to keep taking advantage of borrowers.

One of the great misconceptions about the foreclosure crisis, collapse of the banking industry, and resulting economic depression has been that there was just too little regulation of the mortgage and financial sectors of the economy. Unfortunately, the exact opposite has tended to be the case, with so many laws, rules, and regulations that it would be almost humanly impossible for any company or individual to know them well enough to be able to follow them.

In fact, the vast number of federal laws designed to regulate the housing market and consumer lending industry have served to lull home buyers and owners into a false sense of security, rather than provide effective controls over the economy. While some regulations were meant to restrict lending to those who could not afford to pay back their loans, other actions taken by legislators and regulators have directly encouraged such lending.

Thus, homeowners now facing foreclosure who put trust in the federal regulatory structure to help them save their homes may discover that these agencies participated in the housing boom by encouraging artificial price increases. Now with the collapse of the bubble and accompanying declines in home values, these same bureaucracies are being given hundreds of billions of dollars to assist homeowners in solving a problem they originally helped create.

The following is a list of just some of the federal or semi-federal organizations or regulatory bodies that had relevancy to the housing market, all of which failed to see the bubble, predict the collapse, or deal effectively with the fallout from rising foreclosure rates:

• Conference of State Bank Supervisors
• Federal Financial Institutions Examination Council
• Federal Reserve Board and Federal Reserve System
• Federal Housing Administration
• Department of Housing and Urban Development
• Fannie Mae
• Ginnie Mae
• Freddie Mac
• Office of Federal Housing Enterprise Oversight
• Fair Housing and Equal Opportunity Office
• United States Treasury Financial Crimes Enforcement Network
• Federal Trade Commission
• Office of the Comptroller of the Currency
• Office of Thrift Supervision
• National Credit Union Administration
• Department of Agriculture
• Veterens Administration
• Department of the Treasury

And these are only the regulators that had relevancy to the housing market. Other agencies such as the Securities and Exchange Commission had more oversight over the financial investment firms, hedge funds, and banking giants. These were the companies that did so much to inflate the bubble and spread the risk of the collapse to overseas markets and throughout the entire American economy. Semi-private companies like the credit ratings agencies are also absent from the above list.

Could any more regulation possibly have stopped the banks from wrecking havoc over the entire economy? There have been armies of federal bureaucrats sitting in offices throughout the country who were taking taxpayer money in exchange for overseeing the housing market and financial sector of the economy. Instead of providing effective regulation, they fostered the false sense of security so many homeowners and investors mistakenly bought into.

The above list also does not include the various state and local agencies that are spread around the nation and which employ even more bureaucrats supposedly making sure artificial housing bubbles, predatory loans, and out of control foreclosure rates never happen in their jurisdictions. Have all of them also failed in their public service duties for which the state forcibly takes money from the same homeowners and consumers allegedly for protection?

Hundreds, if not thousands, of regulatory bodies throughout the United States were charged with making certain that the housing bubble and collapse never happen. All of them have failed, despite the vast sums of money they are able to appropriate (or print out of thin air, in the case of the Fed). And now homeowners are expected to give these same agencies even more of their money to protect against more damage being done to the economy?

With all of the positive press about the new government programs to address the housing crisis and work with homeowners to modify predatory defaulted mortgage loans, one would think that the government could do modification programs better than borrowers and banks working together. Unfortunately, the government has proven even more inefficient than the banks.

One of the scapegoats of the economic crisis has been the subprime mortgage lending industry, which supposedly made thousands of predatory loans to unsuspecting homeowners in an absence of regulation and government oversight. Now, after the failure of the markets have been uncovered, government has to step in and solve the problem.

But the government regulators were involved in the subprime market even before the real estate boom turned into the housing bubble. In 2001, the Federal Deposit Insurance Commission (FDIC) seized Superior Bank, FSB, in Hinsdale, Illinois. At the time, Superior was a subprime mortgage lender, making loans with high interest rates to unqualified borrowers.

Instead of closing down the bank's subprime lending division, the FDIC kept it open and operated it. Usually when the FDIC seizes a bank, it will shut down the operations completely, especially if they are of such dubious nature as certain subprime loans were. But the government kept the bank open and made subprime mortgages to new borrowers.

Furthermore, this was not just a temporary measure to fund the final loans Superior was working on before being seized -- the FDIC funded $500 million in close to 6,700 new subprime mortgages during the months it was operating the failed bank. So the government regulators played a direct role in inflating the housing bubble and providing predatory loans.

What if the government made more efficient, more compassionate, more hopeful subprime loans than the average mortgage lender? Then the loans may be understandable and prove that the government has the resources and business acumen to generate positive results from what has been labeled a predatory business practice.

However, this is not what happened. The loans that Superior made while under FDIC control were just as bad as many other subprime loans, and were plagued with the same problems. Inflated appraisals, poor income verification of borrowers, and loans that should never have been made were just as common with the government loans as private loans.

The government either did not see how subprime mortgages were fueling the housing boom, or the regulators did recognize the problem but decided to take advantage of borrowers in order to boost the government bank's profits. In either case, can we really trust these same regulators to fix a problem they did not see or saw but took advantage of?

Now we are expected to put faith in the government's programs to help homeowners in foreclosure by subsidizing mortgage modifications. Are some of the same borrowers who received subprime loans from the FDIC eligible for this new program? Unfortunately, with the government relying on inflated appraisals and failing to verify income, probably not.

Most of the programs put in place thus far to address the housing crisis have been complete disasters. The FHA Hope for Homeowners Program has helped one single borrower, despite having a budget over $300 billion. But each failed plan generates proposals for more plans that are remarkably similar to each other.

From the very top of the government at the Federal Reserve, down to the financial regulators at the FDIC, the subprime mortgage market was fueled by low interest rates and bad loans made directly by the government. Now homeowners are supposed to trust the very same people who inflated the bubble and collapsed it to stop foreclosures and punish bad lenders.

The government and the President have a new plan to help homeowners out of foreclosure. We refer to it as the "Obama Plan". Many homeowners are hoping and praying for the best, but if history has shown us anything, we know it's always best to have a back up plan.

I am sure everyone remembers last years $320 Billion "Hope For Homeowners" program. This was the governments attempt to provide help then, which seems to have been a huge disaster. The plan was supposed to provide funds to help homeowners refinance and the money was supposed to help banks provide new loans. The program was touted as the savior for borrowers who were facing foreclosure.

The end product, according to Fox news, was one saved home. That's right...one single home. Don't get me wrong, I am, sure that one person is very grateful, but $320 Billion to save one home? How could this possibly happen!

My simple explanation for this is that the Washington bureaucrats know absolutely nothing about saving homes from foreclosure. In fact, I would be surprised if anyone who played a part in that bill ever saved a single home from foreclosure, prior to that one.

Now, the latest "Obama Plan" fiasco:

Obviously, after this last experience with the governments "bailout plans" we didn't have high hopes for this one either. And it's not just us; according to the Wall Street Journal headline article of April 15th 2009, GMAC mortgage now estimates that only ten percent of borrowers in trouble will be helped by the Obama plan. Wait just a second! What happened to the 4 million loans that were supposed to be helped, as claimed by the Obama administration? The Wall Street Journal is a pretty respectable newspaper and GMAC is a huge lender, so I tend to take what they say pretty seriously, but that's just the beginning.

MSNBC talkshows last week decided to do their own undercover work and find out how helpful this new bailout plan would actually be. One of their commentators actually tried to find help under the new Obama Plan.

These where his unfortunate and scary results:

1. In the majority of instances, he could not reach a loan servicer to provide any help at all, and

2. Where he did actually reach someone, not a single person could explain if he would qualify for the Obama plan, or even provide much further assistance about finding out how to qualify.

3. Other not-for-profit companies were not any better.

It seems, as usual, no one really understands what's going on and no one wants to make any changes to make it easier for the homeowners facing foreclosure.

When it comes right down to it, an experienced (for profit) company, operating legally, will have an infinitely better chance of helping you with a loan modifications when you are facing foreclosure. Lenders and not-for-profit companies simply don't have the finances, experience, or the manpower to help the number of people facing foreclosure.

Another big part of the picture is incentive. What incentive does a not-for-profit have for helping you? They get paid either way and they don't get paid much, so they can't afford to hire someone experienced enough to get the best plan for you. A for-profit company only gets paid on a successful modification, so they have a huge incentive to get you an affordable loan mod and to do it quickly.

As for the government plan; congratulations to the 10% who qualify, but the rest of you better start making plans to save your home yourself, or find someone else who can do it for you.

Ultimately, it's not possible to think that one government plan can save every house across America. Foreclosures will never come with a one size fits all "government" solution. Each case needs to be handled individually and they almost never fit into an exact mold.

As always, we recommend choosing three possible solutions to stop foreclosure. Never rely on one option and never, never, never, rely on the government to bail you out, just feel very happy and very lucky if they do!

Remember the so-called bank stress tests? They were part of the US Treasury Department's newest plan to stabilize the economy, reintroduce confidence into the market, and provide a whole list of other benefits to investors. The idea was to take taxpayer money (billions of dollars of it) and use it to test large bank's abilities to handle even worse economic times.

Now that the tests have been completed for the 19 largest banks in the country, the Treasury Department is trying to decide exactly what to do with the results. It realizes that releasing the results may set off a panic in the economy and cause damage to weak banks' stock prices. So it is delaying releasing any results.

In fact, if the government releases the results of the stress tests at all, it may not do so on an individual bank basis. Instead, the results would be released as a summary.

This would give the Treasury cover for having performed the tests while not giving any useful information to the public. The tests are administered by the banks and the government with the results interpreted and summarized by the banks and the government to give investors the confidence they are looking for to keep investing in these banks.

Investors and actual bank customers, of course, can not be trusted to read and interpret the results of these stress tests on their own. After all, if they realized that a bank was insolvent and could not pay them back, they might take their money out of that particular bank.

It would be far better for the government just to tell everyone that, while there are still weaknesses with the banks, as a whole they may be able to weather the tough economy. No need to panic -- the banks will survive another day and come back as strong as ever to make bad loans to borrowers with no ability to pay them off.

But seriously, the very fact that the Treasury Department is contemplating not releasing the results of the stress tests on an individual-bank basis should be enough cause for concern in the markets.

No one really knows how much trouble these large financial institutions are really experiencing. The government proposed the stress tests as a means of determining the risk of large banks having to declare bankruptcy. If the test results are so bad that they can only be released as a summary, it is safe to assume that every one of the banks is insolvent.

After all, if the banks were really healthy and had passed the test and had enough capital to face a temporary uncertainty in the stock market, they should be proud of the results and want them released on an individual basis. The fact that this is not being done should be a grave cause for concern.

If the point of the stress tests was not to give valuable information to the public about the health of the banks that they were investing in or depositing their money into, what was it? Were the tests just to use government regulators to cover up the bankruptcy of individual big banks but declare them healthy as a whole?

The Treasury will eventually decide whether or not to release the individual results of the bank stress tests. There are only a limited number of options the government will rely on.

First, the Treasury may just release the numbers as a summary, as it is contemplating doing. This will cause more uncertainty than it will reduce, as investors will not know which banks were deemed healthier than the others.

Second, the Treasury may release individual results after massaging the numbers some more. It can manipulate the numbers, pick out a couple of scapegoat corporations to shut down, and declare the rest healthy enough to survive. Score a victory for one government program!

Third, the government can just release the individual test results without massaging the numbers. Of course, if the real health of the banks is what everyone expects it to be (bankrupt without bailouts), then a run on the worst performing banks may commence.

A run on an unhealthy bank is what the government and the banks are trying to prevent with the release of stress test results, but failed institutions that wasted depositor money should not be allowed to stay in business. The fear of a run on a bank keeps the managers more honest than if they know the government will step in and rescue depositors.

Since the first Wall Street bailout during the current economic crisis, that of Bear Stearns in March 2008, the government has handed out trillions of dollars to companies. Some were failing, some were healthy but the feds wanted control of the corporation in order to dictate how the business operated.

In addition, there have been several "stimulus" packages designed to put more money into the hands of the people of the country. Tax rebates were sent out during spring and summer 2008, and one of President Obama's first acts upon coming into office was passing a $780 billion economic stimulus and spending bill.

And to address the housing crisis, the government has created numerous new programs designed to assist borrowers with stopping foreclosure. Hope Now, Project Lifeline, Hope for Homeowners, Making Home Affordable -- all designed to keep people in their homes and help them get loans guaranteed by the government or negotiate better terms with their current lenders.

So what has the government to show for a whole year's worth of bailouts, handouts, stimulus, and spending? More unemployment, more failed businesses, more foreclosures, more declines in property values, and more resources siphoned off from the productive to reward the unproductive. And what are we promised in the future? More of the same.

Bailing out one failed company after another has turned the federal government into a beggar's alley for corporate CEOs that now have no incentive not to loot their companies and drive them into the ground. Especially if the corporation can become enormous through credit, it will stand a better chance of being deemed "too big to fail."

The so-called stimulus packages have been meant to put people back to work and get people spending again. But just the opposite has happened -- people are saving more and unemployment is rising. Of course, it is only logical in an uncertain economic time that people would save their money or pay down debt if they were worried about being laid off or having their company taken over by the government.

And the housing programs designed to fix the foreclosure crisis and prop up home values? All failures, with the Hope for Homeowners program being the worst so far, having earmarked $300 billion and helped only on borrower. This is $300 billion in taxes, borrowing, and inflation that will have to be paid by every other person in the country to help that one other homeowner.

Aren't we sill expecting too much of the government and how effectively politicians, lawyers, and bureaucrats can run the US economy? More laws, more statutes, more stimulus, more counterfeit money -- none of it will help the economy until the weaknesses are worked out. And as long as strong parts of the economy are forced to prop up weaker companies, the recession will go on.

Five months and $300 billion later, the federal government's HOPE For Homeowners program has helped exactly one homeowner avoid losing a property to foreclosure. This is a perfect illustration of how government solutions are worse than the problems they are supposedly designed to solve, in this case the foreclosure crisis and falling property values.

CNNMoney has an article describing the debacle that has become the HOPE for Homeowners program. Out of 752 applications taken for assistance, the Federal Housing Administration (FHA) has insured just that one loan. And the Obama mortgage relief plan has many of the same characteristics and requirements of this current failure.

In fact, the best way in Washington for a plan to be upgraded, revamped, and improved is for it to fail spectacularly, and HOPE for Homeowners in no exception. According to CNN, "the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama's Homeowner Affordability and Stabilization Plan."

This offers the perfect amount of false hope to people facing facing foreclosure, which carries on the grandiose "place your hope in the changing power of hope" theme of the presidential campaign.

If saving one home from foreclosure means that the government must appropriate nearly $300 billion and turn away over 750 other homeowners, what chance is there that any of its programs will really solve any of the problems in the housing market?

The three hundred billion dollars set aside to save one property means that all of the other three hundred million people in America have to put in $1,000 each -- to save one house! Of course, if this were an actual tax and the government was accountable for its failures, this waste and inefficiency would be eliminated quickly.

Instead, the government is able to rely on borrowing money or simply printing it, as Federal Reserve Chairman Ben Bernanke admitted the government is doing in his interview on 60 Minutes. Therefore, the HOPE for Homeowners program will be continued in the newest program to prop ,up housing prices at bubble levels.

But maybe the new improved version of the failed plan will convince some lenders to participate. CNN says that "Borrowers who owed $220,000 on a house valued at $200,000, for example, would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That's a $40,000 write-off. Under the new plan, lenders would have to forgive $34,000."

Is it conceivable that many banks would voluntarily participate in a program where they have to take a $34,000 cut instead of a $40,000 loss on a defaulted loan? Is there that big of a difference between $34,000, $40,000, or $60,000 (the average cost of a foreclosure) that would convince a lender to allocate additional resources to helping homeowners?

Unfortunately, the answer is still no. The fact that the program is voluntary for the banks and forces them to recognize significant losses on mortgages will keep them from participating. A slightly more lenient program is not what is needed. A plan that has been willing to spend $300 billion taxpayer dollars and has helped only one family needs to be ended before it hurts more homeowners.

Credit unions operating in small areas throughout the country have typically stayed away from the subprime mortgage disaster and the resulting economic collapse. Due to lending only to members of the credit union and having an actual stake in the success or failure of the loans they make to members, there have been few credit union failures compared to bank failures.

Credit unions operate by allowing members to open deposit accounts like checking or savings or CDs, and then lending that money to other members for home loans or personal loans. Because they lend only to existing members, credit unions are able to keep costs down and can charge interest on a loan at interest rates 1-2% lower than traditional banks.

However, the relative success of credit unions compared to traditional banks, savings banks, and Wall Street investment firms is simply not good enough for the government, which seized two of the nation's largest credit union clearing houses on Friday, March 20, 2009. The ostensible reason: "a critical deterioration in the finances" of the clearing houses.

This is, of course, in stark contrast to how the government has treated the failed Wall Street investment banks, which have not been seized but whose financial conditions have deteriorated to the point of bankruptcy. On the contrary, they have essentially been given close to $10 trillion dollars to paper over their insolvencies.

Thus, it seems that the government is attempting to more control over local sources of financing that did not take on too much risk during the housing bubble, while just stealing money and handing it over to the largest financial institutions in the world like AIG and Citigroup.

There are at least two concerns caused by the government takeover of the credit union clearing houses -- the new invasion of privacy by the government that this seizure will lead to, and the raising of costs to join or enjoy the benefits of being a member of a credit union.

This can only increase the costs of getting loans from such financial institutions, which will have to deal with more bureaucracy and regulations. The government does not look too kindly on banks that take acceptable risks and only lend money to people who can afford it, so credit unions will be pressured to make bad loans and increase their costs.

New government programs have also been proposed or instituted to oversee over more and more of people's personal financial and health records. Might this most recent takeover be another way for the government to seize all of the financial records of people who have kept out of the primary banking system?

One piece of good news for the housing market may be that thousands of new homeowners a day facing foreclosure are attempting to take advantage of the various government programs to save their homes. But while more options are better than fewer options, borrowers should consider more solutions than just applying for government assistance.

The government, because it has taken so much money from taxpayers, is facing heavy pressure to produce results in its various mortgage relief programs. This gives the bureaucrats running the programs a large incentive to push through a large number of loan modifications and workout agreements as quickly as possible.

This is contributing to a problem in redefault rates for homeowners who have received assistance from the foreclosure relief programs. Quality is being sacrificed for speed in an attempt by the politicians to pad the numbers of people who have been helped to keep their houses. But if these people later default again, have they really been helped at all?

The newest program put forward by the Obama administration is also creating a moral hazard risk among residential borrowers. Because the plan allows financing of a home up to 105% of its value and does not have adequate property valuation requirements, the government must be handing out money on some homes based on previously inflated, artificial values.

The most troubling aspect of the high redefault rate, though, is that most of these government programs are one shot deals. If the borrowers begin missing payments again, even if the program was unaffordable in the first place, the lender will be able to go ahead with the foreclosure and take the property back.

This puts both homeowners and taxpayers in a bad situation. Taxpayers have their money taken from them in order to guarantee these mortgages. The government does not have adequate valuation requirements on properties receiving bailout funds in a real estate market where prices are declining by the day.

Homeowners who have no equity have little incentive to keep paying these government loans. They may just borrow from their neighbors to remain in the house rent-free for a few extra months at the expense of the taxpayers before going back into foreclosure. And owners who borrow up to 105% of an inflated value will have no other options even if they wanted to keep their home.

While some responsible homeowners who have fallen on temporary hard times and who have a decent amount of equity in their properties despite the falling market will be able to receive help from the government, there is a far greater chance that others will take advantage of the system or realize that they still have no equity and could rent for much cheaper.

It is the homeowners who have the least to lose who default on their mortgages regardless of financial hardships. When property value declines wipe out equity and the government offers to guarantee a loan, borrowers redefault at high rates. Even the government is estimating that 55% of the loan modifications done through their various programs have fallen behind again.

Thus, homeowners should consider every options possible to stop foreclosure before they run out of time. But rushing into a government-backed workout program may be a setup for another failure. Too many people have already lost jobs and lost homes for the government to step in and make the situation even worse by guaranteeing bad loans with taxpayer money.

President Obama's new foreclosure relief program has been named, appropriately vaguely enough, the Making Home Affordable plan. Which party, the lenders or the homeowners, are getting a more affordable home is debatable, but the plan is to spend another $75 billion to fix the housing crisis by covering up property values and lowering monthly mortgage payments.

Seventy-five billion dollars has been allocated to helping close to nine million homeowners fight foreclosure through either a refinancing plan or a mortgage modification. This represents an average of over $8,000 the government will directly spend for each at-risk borrower, along with another $200 billion used to support Fannie Mae and Freddie Mac.

The plan leaves out a number of homeowners and borrowers who were instrumental in keeping the housing bubble inflating. Second homes are not involved in the home. Neither are jumbo mortgages. And neither are those homeowners who own a primary residence but would be unable to document their incomes.

The final group that is left out is the most disturbing. MSNMoney describes this segment of homeowners as "Those who owe so much more than their houses are worth that a lender would do better by foreclosing." Thus, lenders are still in charge of the foreclosure process and will keep taking homes from borrowers when it is a better deal for the bank.

With close to 10% of all loans on one- to four-unit properties at least one payment behind, Obama's mortgage relief plan will leave out a significant portion of the housing market. And it is not that investors, speculators, and people who can not prove their incomes should receive help -- in fact, probably no homeowner should receive direct federal government help.

However, the point of all these government foreclosure relief plans has been to stabilize housing prices, reduce the number of properties facing foreclosure, and assist banks in working with borrowers. Each plan has helped a small number of homeowners, and most have targeted only one group or another, while leaving other groups to fend for themselves.

But the housing boom was made up of investors, speculators, jumbo loans on inflated properties, and people who did not have to document their incomes to receive a mortgage. Taking these groups out of the market (by raising lending standards and not relying on falsified appraisals) and not offering them federal government assistance will depress housing prices.

So the government is dealing with a very tricky situation in attempting to prop up housing prices and help responsible borrowers stay in their homes while simultaneously not offering assistance to the groups of borrowers most responsible for keeping the bubble inflated. If these irresponsible groups are not given help, their foreclosures will lower property values.

Unfortunately, it seems as if the government does not know what the final goal is with all of these contradictory plans. Should they encourage savings or spending? Prop up house prices or allow large numbers of borrowers to fail? Support competition and markets or bail out insolvent institutions? In trying to do all at once, the government is creating more uncertainty and the potential for more foreclosures and business failures.

Giving a blood transfusion to a dying economic patient, jump starting the dead battery of the economy, and providing a federal backstop to prevent wild financial baseballs from injuring spectators have all had one goal so far: propping up housing prices. This is also known as stabilizing the housing market, and is designed to help the banks.

In fact, everything the government has done so far to "fix the economy" has been for the benefit of the banks. From the Federal Reserve (actually not a part of the government but close enough) providing new "windows" at which banks can trade bad assets for good, to the Treasury shoveling $350 billion at various banks, all of it has helped financial institutions.

The problem, according to the banks, is that mortgage securities have fallen in value. If the value of these securities' underlying assets, mortgages on residential homes, could be propped up, then the problem would disappear, regardless of the fact that the people who own the properties would still be unable to pay them.

The problem is not the fact that so many people were sold mortgages that they would never be able to pay back. The problem is that the prices of homes collapsed from the artificially high levels of 2005-2006. Mortgage companies were unable to flip the homes that went into foreclosure as a result of poor lending decisions.

If the banks could only get home values back to levels seen during the bubble, the mortgage securities would not be underwater anymore. In fact, the Ponzi scheme could pick up steam again, if home values would just go back up to levels that were grossly inflated to begin with. Then more securities could be sold to more unsuspecting investors.

This strategy of helping the banks applies to President Obama's foreclosure bailout package, recently unleashed upon the housing market. The plan is designed to help homeowners reduce their monthly mortgage payments to avoid foreclosure, as well as hide the steep declines in home prices across the country.

In effect, people are being asked to ignore the fact that their property has fallen in price in exchange for the government stepping in and helping lower their monthly housing bill. No foreclosure, no forced sale of the property, and no inconvenient sheriff sale or appraisal to determine the value of the home will help hide the true value of a house.

The question no one seems to be asking is if homeowners will be willing to keep paying anything every month for a home that is deeply into negative equity, even with government assistance. Of course, some will, but others will be willing to let the house go through foreclosure and rent for a few years.

This might, in fact, be a better way to dispose of a truly inflated house -- fight the foreclosure, get a short sale or a deed in lieu, and rent for a few years while saving money for a down payment on a vastly cheaper home. President Obama's mortgage plan attempts to convince people to accept being locked into a lower payment while still overpaying for their home.

It is unfortunate but not very surprising to see another foreclosure relief plan put forward by the government where the primary purpose is to hide a much-needed correction in home values. Instead of addressing the problem and lowering mortgage balances, the plan tries to solve the symptom of the problem and hide a true valuation of home prices.

There has almost been too much economic bailout news in the past few days to keep up with. The government is wildly inflating the currency supply and providing one program after another in scatter-shot attempts to prevent more failures. But with each passing day, the stock market declines as investors can not predict the next government intervention.

On Tuesday, March 3, 2009, the Federal Reserve launched a new program called the Term Asset-Backed Securities Loan Facility, or TALF, to buy up financial securities backed by credit card debt, auto loans, student loans, and small business debts. Now companies and investors holding toxic consumer lending assets can get access at the Fed to US Treasury securities and cash to facilitate even more bad loans to consumers.

What is the point of this new program? Well of course, it is to unfreeze the credit freeze, cure the credit crisis, and jumpstart the dead battery of consumer lending. Investors taking part in the $200 billion program must be willing to make new loans to consumers, even though previous loans to consumers had caused the credit market freeze in the first place.

Thus, the new Fed program is another attempt to hide the flaws in the financial markets by dumping bad loans onto the government, while attempting to stimulate more bad lending. Investors receiving these funds from the government are expected to make loans to consumers, even though too many defaulted loans to consumers are the problem.

Two hundred billion dollars, though, will be just the beginning, and this could be the start of another nearly $1 trillion or more bailout. The politicians know that poor lending caused the subprime meltdown, but the only solution being proposed is hiding the bad debt and forcing financial institutions to make more bad loans.

Most Americans, though, have had their fill of credit cards, student loans, and subprime mortgages, and would not take another one out even if they qualified for it. Homeowners have lost significant portions of their equity, and the nice banks that offered them loans even though they lacked jobs are not so nice once the mortgage is late.

In fact, the majority of people who I have received emails from have stated that they are much more cynical of the banking and legal systems in general, and the idea of borrowing more money in particular. More people are realizing that debt is a trap, that money is debt, and that the government controls the supply of money.

Homeowners realize it watching their equity disappear by the day as the foreclosure rate devastates communities, and investors realize it watching the stock market tumble further every day. And there is nothing to show for it all besides more government programs, more government control of the housing and financial markets, and more money given to failures.

Until the bad debt is liquidated properly and the government gets out of the business of forcing taxpayers and successful businesses to prop up failing institutions, the recession is here to stay. Hiding debts in new Federal Reserve acronyms will not solve the problem of too much bad debt -- it will only prolong the downturn.

On Wednesday, February 25, 2009, the US Treasury Department announced a new tax credit for first time home buyers. This is part of the Obama administration's American Recovery and Reinvestment Act of 2009 and is designed to give those purchasing a home in 2009 for the first time a tax break of up to $8,000.

The most important aspect of this new tax credit for buyers to be aware of is that it can be used to offset either 2008 or 2009 taxes. The house must be purchased before December 1, 2009, and is a legitimate tax credit. The previous tax credit for first time home purchases was designed to be paid back over time.

Tax credits can be helpful to the economy for a number of reasons, and so this aspect of the Obama mortgage relief plan is welcome. Giving home buyers a credit against their income taxes may encourage more people to purchase homes while still being able to keep more of their hard-earned money at tax time.

However, the government is also trying to accomplish too many contradictory goals. This latest tax credit is supposed to stimulate the housing market and make purchasing a home cheaper for new buyers. But the government is also attempting to "stabilize the housing market" and keep real estate prices from continuing to fall -- thereby making it more expensive to buy a home.

Also, the Obama administration has put forward vast new spending programs, including the nearly $800 billion stimulus package and the $275 mortgage bailout plan. A new tax credit will decrease revenue to the federal government, which will have to rely on borrowing or printing money to fund the programs -- both of which will have to be paid for.

At the same time, in his speech to a joint session of Congress and the nation on Tuesday night, Obama also pledged to cut the deficit in half by the end of his first term in office. This will require even more tax revenue to accomplish, if the government does not default on its debt. But how we can have spending and deficit reduction along with taxes is unclear.

Consumer credit also presents an issue on which the government has issued contradictory statements. Congress realizes that making loans to people that could never pay them back had caused the bubble in real estate prices and the lack of lending guidelines by banks led to massive defaults and record foreclosure rates.

Yes, the government has shoveled out hundreds of billions and even trillions of dollars to these same banks to attempt to get consumer credit flowing again. But credit can only flow to the same people who were given loans who could not pay them back. Giving these people more mortgages and car loans will only increase defaults and further bankruptcy the banks.

So what is it that the government is encouraging? Better lending standards or more loans to consumers? Vast new spending or a reduction in current government debt? Tax credits or the need to sacrifice to preserve the government's credit rating? Keeping home prices artificially high or making housing more affordable to those least creditworthy?

Because all of these actions involve government intervention in the economy, markets do not know how to react except by selling out. It is impossible to predict which companies will be bailed out, which will be nationalized, and which will be allowed to fail. Government is introducing more uncertainty into the markets than ever.

On Wednesday, February 18, President Obama unveiled his administration's latest attempt to stabilize prices in the housing market and help stop the rising tide of foreclosures. Will this plan be any better than the half-dozen that the Bush administration passed? With a $275 billion price tag, we should expect the foreclosure problem to be resolved, but this latest bailout act seems to be just another way to avoid helping homeowners.

As with the FHA Hope for Homeowners Act, Obama's newest plan is simply out of the financial reach of many homeowners. The requirements are quite strict, which should have been no surprise when the president announced a longer list of people who would not be helped by the plan than who would receive assistance. But taking hundreds of billions of dollars away from homeowners, employers, and everyone else to avoid helping people will not promote economic recovery.

As the government spreads pain and misery around the economy, redistributing poverty from the banks to the rest of us, homeowners may not want to put too much hope in this latest plan. But for those interested in having another government-sponsored program to stop foreclosure, the following is a list some of the requirements to qualify for the plan.

To qualify for a foreclosure refinance loan from the government at a fixed rate of around 4-5% for 15-30 years fixed, all of the following requirements must be met:

• The loan must be a conforming loan under Fannie Mae and Freddie mac guidelines.
• The mortgage must be owned by either of the Government Sponsored Enterprises, Fannie Mae or Freddie Mac.
• Alternatively, the loan may have been sold by Fannie Mae or Freddie Mac in a mortgage security.
• The homeowners are not currently behind on payments or have a history of on-time payments.
• The homeowners must continue to pay any second mortgage on the property even after the refinance.
• The first mortgage on the house must not be more than 5% of the fair market value of the property, or it must be written down to that amount. For example, if the house is worth $100,000, the first mortgage may not be more than $105,000.

Looking at this list of requirements, it will become apparent that many, many homeowners will not qualify for this program with current housing market declines. Borrowers with 80/20 loans whose home values have fallen under the amount due on the first mortgage will have to keep paying on the second mortgage, as well as either pay down the first or have the bank agree to reduce the balance due.

And this program is voluntary for banks who have not received federal bailout money from the Troubled Assets Relief Program (TARP). While most of the big banks have received funds, many smaller regional banks have not -- and these banks may not be willing to write down the value of their loans by 10-20%. Writing down the value of bad mortgage securities is what has caused so many paper losses on bank balance sheets already; it is inconceivable that many struggling banks will want to admit to even more.

There is also a second part of the bailout plan that may allow homeowners to qualify for a government-guaranteed mortgage modification program. This involves the bank modifying the loan to be within 38% of the borrowers' gross income and the government stepping in with money to help reduce the payment to 31%. The requirements for this part of the plan are the following:

• The mortgage must be conforming under Fannie and Freddie guidelines -- jumbo loans are not permitted.
• This program must be done on a principal residence -- investment homes, second homes, or vacation properties do not qualify.
• The homeowners must be in danger of default on the loan or have already defaulted. In danger of default can be a mortgage where the payment is more than 31% of the borrowers' gross (before tax) income.
• The lender must be willing to modify the mortgage to reduce the homeowners' monthly payment to 38% of their gross income or less.

While the new bailout program gives banks more incentives to negotiate with borrowers, it may not give enough to convince banks to change their normal business practices and dedicate more resources to helping homeowners. As mentioned above, participation is voluntary, except for banks that have received TARP money and Fannie Mae and Freddie Mac, which are under government conservatorship.

Does the plan go too far? Some critics point out that using taxpayer money to bail out failing banks or failing individual borrowers will only create more moral hazard in the future. Once debts are paid back or discharged and banks loosen up lending, there will be a strong incentive to reinflate a housing bubble, especially in the presence of low interest rate targets set by the government. A new bubble and collapse will send all of the same players back for more government bailouts.

Or does the plan not go far enough? Other critics point out that this is not nearly enough money that the government is taking away from taxpayers to bail out the housing market. Property values fall for everyone in areas hard hit by foreclosure, so it is in everyone's best interest to do whatever it takes to prevent more foreclosures, or so the argument goes.

In either case, the full details of the plan will be released on March 4th, which gives all of us a week to contemplate how the government's latest bailout plan will save the housing market. Unfortunately, previous plans have failed to assist many borrowers, and this plan seems to offer little in the way of really novel proposals. For most homeowners facing foreclosure, it will probably be best to keep looking at other options, in addition to considering receiving mortgage assistance from the federal government.

Related articles:
The Obama Plan-Who really understands it?
Everything They Don’t Want You To Know About the Obama Bailout Part 1

So far in the recession, corporations from Wall Street investment banks to the auto industry have received bailouts from the federal government in efforts to ward off bankruptcy. But state governments oversee economies the size of small (or large) countries, and their cash flows are decreasing as tax revenue dries up. With the federal government imposing new regulations with every stimulus, as well as taking money from the residents of the states to fight the recession, some states have begun to wage a quiet war against federal authority.

State governments are not allowed to operate with deficits as the federal government can. The feds have a monopoly on money creation through the US Treasury and the Federal Reserve, so states must make do with what they can collect from the people living and working within the boundaries and not rely on the printing press. This requirement to balance budgets is putting a strain on local and state governments as tax revenues decrease.

The most prominent state in the government battle so far has been California, which has been in the news constantly since the housing market collapsed. With such a large government and such high foreclosure rates, it is becoming increasingly desperate for the Golden State. The squeeze is already on counties, which have not been reimbursed by the state for required programs. In response, some counties have threatened to put a hold tax revenue payments to the state. The government of the state has requested bailout funds from Congress while threatening to lower state workers' wages down to the minimum wage, even as counties are expected to forward taxes to the state but go without funds for promised services.

Another state that one would not think was hit hard by the recession and foreclosure crisis, Kansas of all places, is also hurting for money. A recent news article by the AP reports that the state has stopped processing tax refunds for constituents. Now it is the homeowners and workers themselves living in Kansas that are being squeezed directly as the state refuses to send out the money that they overpaid in taxes throughout the year. In fact, some people deliberately overpay each year, counting on a sizable refund check. This theft of tax return money will only hurt these families who may have used the funds to pay down debt or even stop foreclosure if they are really in need of it.

All the talk of supporting local businesses and punishing giant Wall Street firms and multinational banks may also be translating into action at the state government level. Former Illinois Governor Rod Blagojevich, before being arrested on suspicion of attempting to sell a vacant Senate seat, had announced plans to remove state funds from Bank of America after the lender would not continue to support a local Chicago business. Other states may begin to follow suit by moving taxpayer funds from the largest banks (with headquarters in New York, California, or Dubai) to smaller, local and regional banks.

Such an action of removing state funds from the multinational banks would have the consequence of strengthening lending in local markets to local businesses which employ local workers. But such a measure would also be combated by the large banks, even though these banks are the ones that set up the housing market for collapse and have taken the profits from the bubble offshore already. It will take strong state and local governments to begin denying funds to multinational banks and instead supporting local businesses.

The spending of the stimulus bill recently passed by Congress is one way that the federal government is attempting to address the growing discontent among bureaucrats down the line. Vast infrastructure spending is one way to transfer money from people to the federal government to state governments to local governments to preferred contractors who will spend the money and increase tax revenue to the layers of government. This measure may kick the government bankruptcy can down the road a little way, but meaningful changes will have to be made to address the crisis in the long term.

Each new bailout and spending package has been designed to prevent corporations from having to declare bankruptcy, but has not addressed why these failing institutions did not plan for any but the rosiest futures. And each new spending program that is released to great fanfare but fails to stop the recession erodes more of the peoples' trust in the government. Over $8.5 trillion has been injected into the system by the Federal Reserve or appropriated for programs by Congress, but nearly 500,000 jobs are being lost every month.

Any erosion in the level of trust people have towards the government will be met with an equal or greater erosion of trust that government officials have in the people. But what happens when one level of government loses trust in another level of government? With the vast, vast number of regulations, from federal to state to local, government has infiltrated nearly every aspect of peoples' lives. With money becoming tighter and a recession lingering for over a year now, and with preferred corporations being given new bailouts every week, state governments may have to become leaner and more independent of the federal government if they wish to survive.

The Financial Stability Plan is the latest proposal from the President and Congress on how best the government can intervene in the economy to get us all out of the recession. Despite the fact that every previous government intervention has, at best, done nothing and, at worst, only made matters worse, this new plan will supposedly save the nation from the damage caused by the politicians and the banks.

The fact sheet (PDF) on the new plan is a prime example of how the government distorts language and uses metaphors and fancy turns of phrase to say virtually nothing at all. The very first line of the plan states, "The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts." This begs the question, our full arsenal of what? A war metaphor used to describe the actions the government plans to take to fix the economy is hardly reassuring, especially in the wake of how the government has handled previous acts of aggression and war like Vietnam, Afghanistan, and Iraq.

Especially if the nation "faces the most severe financial crisis since the Great Depression," unleashing an arsenal to attack the nonexistent credit crisis seems to be a destructive path to take. But the government answers its own question of what weapons will be used to attack the crisis with even metaphors and empty phrases: "the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem." In other words, the government will use its tools of taxing, borrowing, and printing money to do whatever it takes to force banks to... to do what, exactly? What defines success of the program?

Well, the government answers that question with another round of empty words that readers are free to pour their own meanings into. "To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans." This one sentence sounds like the central planners know exactly what they are doing and have grand ideas to spend us all back to prosperity but it also has a lot of meaning missing in it, so it should be looked at piece by piece.

"We must address the uncertainty,..." The uncertainty has been caused by banks extending loans to borrowers who could not pay the money back, and by issuing securities on packages of these loans to investors around the world. The government has done exactly the opposite of what is necessary (liquidating these bad assets) and has instead tried to prop up values or paper over the losses by printing money and trading it for bad assets. It can not keep sacrificing the value of the dollar for the value of bad mortgage assets, as this impoverishes us all and transfers uncertainty of CDO and MBS and ABS values to the value of the nation's currency itself.

"...troubled assets..." This is what the Troubled Assets Relief Program was supposed to be about -- not the Financial Stability Plan. But half of the TARP money was simply handed out to the banks with no accountability or tracking of what the funds were spent on. Of course, the original idea of having the US government buy up bad assets in exchange for newly printed money was just as bad of an idea.

Furthermore, if by troubled assets, the government means propping up the housing market, this is another mistake. Home prices rocketed upwards by double-digit percentages for years and money was so easy that even people without jobs could qualify for mortgages. The banks and government artificially pumped real estate markets full of easy money in order to score easy profits and easy property tax increases. But it was an illusion, and prices will now have to fall for buyers to be able to purchase homes at affordable prices.

"...and capital constraints of our financial institutions..." Financial institutions and the government are the two parties most responsible for the erosion of capital production in the country. People work for corporations. Corporations pay people for their work. People deposit their pay with the big banks. Big banks offer corporations loans to relocate jobs overseas. People finance their own joblessness. Governments put all of the pieces in place to facilitate this system by keeping taxes high in this country and lowering interest rates artificially to make moving overseas more profitable to corporations.

"...as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans." The problem, of course, is that Americans already have too many loans and need to pay some of them off before they can more out. People will need to stop spending on their credit cards and begin saving again in order to facilitate a real economic recovery. The government's idea that simply printing more money so we can borrow it and spend it and be rich is ludicrous. Also, credit markets are not frozen for people and businesses that have the ability to pay back their loans.

These are just the first two paragraphs of the fact sheet for the Financial Stability Plan, and paragraph #3 is just as loaded with vacuous inanities. This blog will look at the actual pieces of the plan over the next few days, although much of it is just as vague and nondescript as these sections have been. Once again, high-sounding fancy language is being used to cover up the government's stunning lack of any real plan and as an excuse to take more money from Americans to hand over to banks and corporations. Or, as the government puts it, "bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery."

Watching all of the coverage of the latest economic stimulus on television, one question comes to my mind repeatedly. Has the government been holding out on us all? After all, if the point of the spending bill is to get the economy going again, create jobs, put people back to work, save the environment, and get credit markets unfrozen, then the government has a lot of explaining to do about why its previous packages failed.

The new stimulus will provide nearly $800 billion for the president to spend on a variety of projects, plus a number of tax cuts. Will this be the magic $800 billion that saves the economy, despite the already nearly $8 trillion that the Federal Reserve, Treasury, FDIC, and other government agencies have spent or provided to the banking, insurance, and auto industries?

It always seems like "this next package" from the politicians is what will get the economy moving again. But there is never any acknowledgment of the failures of previous plans. Stopping foreclosures is another of this plan's goals, yet every program the government has put in place to address the foreclosure rate has failed. Hope Now, Project Lifeline, the Hope for Homeowners Act -- none has yet put more than a couple of band-aids on a ruptured artery.

But over and over again, Americans are promised that, by simply stealing more of their money through borrowing and inflation, the government can put them back to work, create new green jobs, save the planet, and lower taxes. The magic wand that will create all this wonderfulness out of a corrupt economy fueled by easy government credit is, of course, the printing press. Trillions of dollars have already been created, and trillions more are on the way.

While the $800 billion stimulus bill is not the beginning, it is also not the end of the government interventions in the marketplace. The wrong regulations set up the housing market to fail, and now new regulations will prevent the entire economy from recovering. On top of that, we will all have to pay our share of the numerous bailouts of industries that are failing for very valid reasons -- they are out of money, out of customers, and out of trust.

Creating $8 trillion in the space of a year, with nothing but more spending planned for the future, will result in only more problems for the economy. Instead of causing the next Great Depression, where money was tight and unemployment high, the government is setting us up for a far worse fate: an inflationary depression, where unemployment is high but prices keep rising anyway. After doing its current duty of covering up losses at financial institutions and other industries, all of the newly created money will eventually find its way into the market and drive up prices.

Now is the time for Americans to begin saving more, paying down debt, and reducing consumption. But these actions are exactly what the government is preventing from happening. A reduction in consumption may cause some companies to go out of business. However, businesses need savings in order to increase production, and both the savings rate and the industrial base in the country have been decimated over the past decades.

If the government does not allow the correction to occur, the current recession may continue for years. The government can not stop foreclosure, save the planet, or create lasting jobs for a large segment of the country. All it can do is redistribute money from successful businesses to failed ones, destroy the currency, and encourage the exact opposite of what is needed to get the economy working again. Unfortunately, destroying what is left of the economy seems to be exactly what the politicians are trying to do.

If you have a mortgage that the government acquired through its rescues of Bear Stearns or AIG, you may have an incentive not to pay your mortgage anymore and stick the government with the bill. Through a new program, the Federal Reserve is looking at modifying mortgages that the government took over as a result of bailing out these two corporations.

The program, called the Homeownership Preservation Policy, is open to homeowners who are behind in payments by at least sixty days. For those borrowers who are still current on their homes but have seen serious declines in value or would just like to have a lower mortgage payment, missing a couple of monthly bills should be fairly easy. Of course, the program is not open to families who are making their payments on time -- after all, these diligent, hard-working people are the ones footing the bill for these types of programs.

But for the borrowers who have faced a financial hardship or those who just do not want to pay such a high mortgage anymore, the Fed's new policy may offer relief. Instead of facing the loss of the house through foreclosure of the loan, homeowners can have the government reduce their monthly payment through a loan modification -- a solution to foreclosure that is often very difficult to qualify for from commercial banks.

Of course, this program, far from actually preventing the foreclosure rate from rising even further, will simply encourage more people to become sixty days late in their payments. Because the government now owns these mortgages, foreclosure may be off the table, but the policy will encourage the devaluation of mortgages assets as families who are on time now decide to take advantage of a potentially lower payment.

Just as with all of the government's programs to stop foreclosure so far, the Homeownership Preservation Policy will fail. And once it does, it will be declared a success and funding for it will increase. The program only involves mortgages that were acquired through the bailouts of Bear Stearns and AIG for now, but once it fails to affect the foreclosure crisis, expect it to expand to other types of mortgages.

Thus, homeowners are being given more incentives to leave behind their overvalued homes and unaffordable mortgage payments in the hopes of a government bailout. And why shouldn't they take advantage of such programs? The government has bailed out nearly every company that has requested assistance -- why not homeowners themselves directly? Just as corporate CEOs are rewarded for driving a company into the ground, borrowers should have the same right to take on too much debt, not be able to pay it, and have the government steal or print money and assume these losses.

In a simple model of the economy, households use their income for consumption, tax payments to the government, and private savings. The government also spends the money that it receives from tax payments or simply borrows or prints money in order to spend it. In the current economic climate, though, where prices are declining in some sectors (the housing market being the most obvious example), the supply of money available to households seems to be shrinking even as the government prints more than it has ever done in the past.

When a recession hits, incomes generally fall overall and all three ways that families spend their money can decrease. The fall in consumption was clear this past holiday season as people spent less than in previous years. Local and state governments are pleading with the feds to steal or print more money in order to make up budget deficits. And the savings rate in America has been at zero or negative for years now, although there is some indication that people are beginning to save more than borrow or spend.

Homeowners and other consumers who have taken out too much debt will then arrange to have it either paid off or discharged through bankruptcy proceedings. The nature of the monetary system in the United States, where money is created as debt and only the principal is created (not the interest necessary to pay back the debt), creates a shortage of money. Some people will pay back loans that they have taken out, but they must accumulate the interest by preventing some other borrowers from being able to pay back loans. There is simply not enough money out there for every loan to be paid on time.

Thus, the households that can not pay their debts will be forced to declare bankruptcy, fall into foreclosure on house loans, or the banks will simply have to write off the bad debt. Of course, this gives homeowners and others a convenient way to get out of the perpetual debt system, but some banks, attorneys, and collection agencies may attempt to pursue these debts forever. But discharging a loan through foreclosure or bankruptcy is not a reflection on any family's core values of beliefs, but simply a byproduct of how the monetary system is designed to function.

The Federal Reserve, in order to stimulate spending and borrowing and delay discharges of bad debt, does not easily allow this destruction of the inflated currency and will print more money. When rising prices as a result of inflation is obviously occurring, the government manipulates the numbers downwards to make the problem seem smaller. But if prices decline, this product of deflation is immediately addressed by the Fed printing trillions of dollars of new money in order to force prices back upwards. The government's bailout of the economy is now approaching $8.5 trillion dollars of newly created or borrowed money, which is doing nothing but setting up a possibly hyperinflation in the future.

There is little that the government can do to help the private market recover from a severe recession. The government, in fact, set up the conditions that made a recession inevitable, and is now doing everything in its power to turn it into a depression, if not the Great Depression II. Households will have to begin saving again in order to provide stability to the markets, rather than the government artificially lowering interest rates to discourage savings, all the while debasing the currency. From now until the recovery, the government will be responsible for every home lost to foreclosure or job lost to downsizing, as the private sector attempts to solve the problems created by government in spite of bureaucratic interventions.

(updated below - Update II - Update III)

As the economy continues to worsen, one of the last bubbles to burst will be that of local and state government budgets. They grew at enormous rates during the real estate boom years as property values increased, and they received a large amount of federal aid for infrastructure and militarization of the police force. Now that the economy has fallen into recession, the addiction for local and state governments to grow will be difficult to break.

Some states or cities are already raising the cost of fees, fines, and another charges, along with sales and other taxes. This will only take money out of the hands of homeowners already facing foreclosure and families facing bankruptcy and the loss of jobs and transfer it into the hands of bureaucrats who will use the money to devise new methods of extracting money. The fact that the rape of people's wallets is always done in the name "protecting the public" makes it even more sickening.

Despite falling real estate prices throughout the country, homeowners should not expect a break on their ad valorem (based on the value) real estate taxes. While rising prices are an excuse to impose more taxes on people, falling values are "irrelevant" to the government's propensity to keep growing and micromanaging more of the lives of ordinary, reasonable people. But local governments can not afford to decrease tax revenues voluntarily, as the high foreclosure rate is already draining the counties of homeowners to steal from.

But these are only the overt, public ways that the government will utilize its violent nature to keep growing, despite the fact that its growth in the face of economic collapse will impoverish us all, human beings and bureaucrats included. The government also has many covert methods of extracting more money from decent, hardworking people who work in the private sector to create products and services that the politicians can attach themselves to as a leach.

Especially important to watch out for is any involvement with the city, county, or state police. These former human beings have been turned into heavily militarized, steroid-addicted sociopaths by the federal government's military aid and the willingness of police departments to hire only the most brutal, small-minded applicants. The same applies to administrators and processors in county jails and courthouses who will treat private people as little more than cattle to be herded or sheep to be sheared.

Speed traps are growing and cops are actively out "revenuing," searching out nonviolent "offenders" of vice "crimes" or who "fail to appear" and pay blind obedience to the State's authority. This is done to bring them into the State's gulags, steal their money, and then set them a church date where they will have to follow the rituals of a man wearing a dress court hearing in front of a judge. This is a much more direct way for government to keep imposing its psychopathic violence on the vast majority of nonviolent human beings.

As the foreclosure crisis continues to roll through the country and the economy collapses further and further, despite the best manipulations that the government can devise, one ray of hope is that the State may finally be starved and have to stop growing. Unfortunately, all such transitions are associated with violence from and destruction of the old order, and right now, the desperation of government is on full public display. Raising charges, keeping taxes based on value high as value falls, and bringing the guns of government out in full view are signs of weakness of the State.

UPDATE: Speeding, Parking Tickets on Rise as Government Revenue Source. Watch how fast you drive and check if your headlights and brake lights are working -- you do not want to have to pay hundreds of dollars in fines while you are unable to pay thousands of dollars in mortgage payments.

UPDATE II: I was in Chicago just a few days ago and saw two overweight government agents lurking through the streets checking parking meters. I encountered these two ticket producing walkers within the space of two blocks -- one was walking one way down a street and the other was just around the corner. A few blocks later, the government had put another overweight parasite on a four-wheeler in order to block traffic in one lane while simultaneously handing out tickets.

This type of activity by the government will only increase as times get tougher and the economy slips further into a depression. And the more that the government takes from citizens by force, the deeper the recession is guaranteed to progress. Budget shortfalls of billions of dollars will not be made up simply by stealing more money from people -- it will only make keeping order a more precarious business and further erode peoples' trust in government.

UPDATE III: Do you claim fewer exemptions on your state income taxes, hoping to get a larger refund check back every year? If so, you might want to think again -- when the going gets tough for government, laws like the tax code get set aside. Kansas has stopped processing income tax refunds and may not even have enough money to pay all of the bureaucrats already on its payroll.

Economists must be the least informed group of people on the planet. When nearly every consumer and homeowner believed that the country was in a recession almost a year ago, economists and the government just figured it out last month. Of course, that made the recession "official," which meant it was less wrong, in the government's eyes, to use the word, and also gave the government more reason to interfere in the economy and all our lives.

But what is it that economists really study to determine whether or not the country is in an "official" recession? The most important concepts in studying the broad economy are Gross domestic product (GDP), the consumer price index (CPI), and the unemployment rate. Homeowners should know more about these terms, if for no other reason to defend themselves against political manipulation of the language.

GDP is a measure of the nation's total output. It is measured either as the total income earned in the country, including foreign own factories or workers in the United States, or as the total amount spent by consumers on goods and services. Ideally, these two numbers are equal, although some assumptions are made in order to deal with situations like unsold inventory by businesses.

The consumer price index measures the level of prices for a specific "basket" of goods and services purchased by typical households. This number is computed by the Bureau of Labor Statistics and is used to determine the level of inflation. Unfortunately, the CPI that the government uses does not include food or energy costs, which make the official number seem quite low in the face of rising energy and food prices, as we saw in early 2008. Many economists, however, believe that the CPI actually overestimates inflation for the other products and services it measures.

Finally, the unemployment is pretty straightforward. The Bureau of Labor Statistics conducts surveys on Americans to find out if they are employed, unemployed, or not in the labor force. The labor force is the total amount of people employed and unemployed. In fact, the BLS conducts two different surveys to measure unemployment. The establishment survey determines how many workers firms have on payroll, while the household survey asks individuals if they are working, unemployed, or not looking.

These are the most basic definitions of some of the most important numbers that economists use to make fancy contradictory predictions about how the economy is not in a recession, how the recession is not deep, and how long the current recession will last. Just understanding what these terms means can help homeowners and consumers develop a much-needed distrust of anything economic professionals on television or the radio propose to fix an ailing economy.

Too often, manipulated government numbers are manipulated in order to give the government more reasons to manipulate the economy further. And if that does not work, more manipulation of the numbers will be called for and more power given to the government to save the economy through depression economics. Depression economics, though, will almost guarantee depression prosperity for large numbers of people.

This is the fourth in a series of articles responding to various inquiries about foreclosure services and different solutions to save a house.

The FHA Hope for Homeowners loans have received a good deal of press -- but will they really help? And do you really want one?

To qualify you need:

1. To convince the current holder to accept an amount of payout equal to the present fair market value of the home less ten percent. Up until the government's 700 billion dollar bailout of the banking system, almost no holder would agree to accept such a small amount. But things could be different if the government has purchased YOUR loan. As they will be purchasing loans at a significant discount, 10 percent of fair market value may not be a bad deal for them.

2. You will have to qualify under fairly stringent FHA guidelines.

3. You must put down in the neighborhood of 3 percent of the loan value and any amounts given to you by family or friends has to be as a loan that cannot be repaid until the FHA is paid off.

4. Your payments will include a one and one half percent insurance payment that will normally raise your payments over a market payment.

5. You cannot have a second mortgage.

6. You have to agree that any increase in value of your home will be shared with the FHA. This ranges from 90 percent in the first year down to 50 percent in the fifth year and thereafter.

So, as can be seen, few will qualify and less will want these loans. But one may really fit some folk's needs.

Whether to do an FHA loan, a mortgage modification, deed in lieu of foreclosure or short sale takes well trained professionals, without anything to gain or lose by your decision.

Over the past months the federal government has enacted one after another pieces of legislation supposedly designed to help homeowners stay in their homes.

Great sound-bites for the politicians eager to look like heroes -- but here is the real truth!

Don't count on it helping you (or anyone who is in real bad trouble)!

Frankly, I am constantly amazed by the baloney that the politicians are hoping we believe is steak. If I wanted deli food I would go to a deli.

The government legislation will help very few homeowners because;

A. The programs are voluntary for lenders. The government simply will not use its regulatory clout to demand compliance. Nothing new in that!! If the regulators were not asleep at the wheel we would not be in this position today!

Look at the political contributions of the financial services industry to see one good reason why. That, along with some very good reasons concerning the future risk to the mortgage industry if the government could simply force a change in loan terms (that would raise interest rates), is the reason why participation was not mandatory.

And it isn't just the Republicans! The Donkey is just as fat as the elephant this time!

B. The federal government has little or no power to modify the terms of loans -- just foreclosure procedures. The Constitution does not permit the federal government to change the terms of prior contracts. They can put some moratoriums or changes in procedures on foreclosures, but they cannot just change the terms of mortgages. That is good for society over the long haul, but makes it hard to clean up this mess.

C. No matter how well intended, the new practices still have to make economic sense to the holder of the loan-which may be the government itself. If the government buys billions of dollars of bad loans, they still must protect the taxpayers' dollars that are invested in this. They will not do anything that is not a good business deal for all of us taxpayers who are not in foreclosure. That means somewhat more modifications but not many more than lenders would have made anyway.

D. The plans are all "cookie cutter" and do not address individual needs. A sledgehammer approach won't work when a scalpel is the right tool. The FDIC plan for banks it takes over (IndyMac was first and many more to follow) and the Countrywide settlement with 11 states will help a small percentage of homeowners. Each plan simply reduces the mortgage payment to between 34 and 38 percent of gross income. But what about most homeowners who need even lower payments because of other debt and costs of living??. If you like dog food for dinner you might just qualify!. As always, the worse off you are the less help is there.

E. The practices must be administered by servicers that are not incented to modify loans and cannot hire the legions of trained people necessary. Servicers usually spend well under $50 on your loan per year and slightly more when they just throw it over to the foreclosure lawyer. Negotiation costs a lot more and so do people to negotiate them.

Ever try to get through to anyone who will even return your calls? Understand that lady who sounds like she is from Burma? (She is actually from Sri Lanka.)

Now you know why.

But, if these programs are used as a means to an end, you can turn this governmental baloney into steak,( and your foreclosure into a bad memory).

Please call us at 1-866-834-6289 We will give you a free analysis of what can probably be done by you or by us to get the relief you need. The FHA loan, a modification bolstered by governmental programs, or a more aggressive plan-each has its benefits and flaws. Our team of lawyers and professional underwriters will know the best approach to take.

Many homeowners unfortunately seem to believe that the government's new foreclosure relief programs are designed to help them keep their homes and obtain more manageable monthly payments. The reality is, however, that the requirements borrowers must meet to qualify for assistance from the federal government make the programs a cure worse than the initial problem.

And while these programs have received much positive press, the terms offered on the loans provided by the government under the FHA Hope for Homeowners Act are almost predatory in nature, and it is doubtful most borrowers will take the time to realize just what they are getting into. In fact, it is more difficult for borrowers to qualify for an FHA Hope for Homeowners loan that it is for Wall Street firms to receive billions of dollars in direct investment from the bailout program.

For over a year now, home values have been decreasing in large parts of the nation, with areas hit hard by foreclosures suffering more than others. But the FHA requires that homeowners convince their lenders to accept only ninety percent of the current fair market value of the home in order to qualify. In some housing markets, this may necessitate a 30-40% writedown of the mortgage balance, which most banks will not want to recognize.

With the bailout program proceeding, though, the government may become the owner of some of these defaulted mortgages, which may make it slightly easier to qualify for the FHA plan. The government has stated it will attempt to buy mortgage backed securities at a discount, so if it can convince lenders to sell for less than the fair market value of the securities, it may be more plausible for the government to help homeowners qualify for assistance by meeting this requirement.

Another problem for homeowners with subprime mortgages in foreclosure is that the second mortgage must be completely paid off or otherwise disposed of before the FHA will fund the loan. This can be extremely difficult to resolve, as many 80/20 loans were made during the real estate boom, and it is quite unreasonable to expect that a family in foreclosure would be able to pay off 20% of the value of their home just to qualify for another program to help stop foreclosure for good.

Also, the government and banks have worked together to depress the housing market throughout the country and is now blatantly trying to cash in when prices begin to rise again. Homeowners who participate in the Hope for Homeowners plan must split any proceeds of selling the home with the FHA. The government will be able to take up to 90% of any increase in the value of the property that homeowners otherwise would have enjoyed.

Income and debt ratios are also fairly strict under the FHA plan, and the program has a 1.5% insurance payment that must be paid every month for the life of the loan. This can raise the monthly payment over an affordable limit for many homeowners, who are then locked into their house and unable to sell to save the house later on because the government would receive most of the proceeds anyway.

While some borrowers may receive a benefit from the FHA plan, it would be difficult to imagine how such a program could help large numbers of borrowers save their homes with a more affordable, reasonable mortgage. It is only slightly better than a typical hard money loan, and if homeowners can convince their mortgage companies to write down the value of the mortgage by 30-40%, then they can almost certainly convince a foreclosure lender or hard money lender to fund a loan with poor terms, similar to the FHA program.

As someone who has lived in and around Chicago nearly my entire life, it was with some trepidation that I watched the crowds pour into Grant Park to celebrate the election of Barack Obama to president of the nation. Nearly one hundred thousand people came to the party, many of them weeping, chanting "Yes we can," and believing that now they would not have to worry about gas prices or paying their bills because the government would solve all of their problems.

Unfortunately, the millions of people who cast their vote and thought they decided who won the election and are looking forward to at least four years of change away from the financial corruption of the current administration will be sorely disappointed. The Obama campaign was more awash in Wall Street money than McCain, with five of the world's largest banks and investment firms appearing in the list of the campaign's top twenty contributors.

Currently, Goldman Sachs is essentially in control of the US Treasury Department, with Secretary Paulson leading the agency and appointing as the Interim Assistant Secretary of the Treasury for Financial Stability another Goldman Sachs alumni, Neel Kashkari. The financial investment company (now a bank) donated over $874,000 to Barack Obama and another $228,000 to John McCain.

Merrill Lynch, Morgan Stanley, Citigroup, JPMorgan Chase, and even bankrupt Lehman Brothers also made large contributions to both candidates. These are the very companies that own the Federal Reserve which sets interest rate and inflation policies for the nation, and which helped to inflate the housing bubble. Now with the housing bubble dragging down the rest o the economy, Americans have elected a new president who is being funded by the same financial power centers that live off of government subsidies and have bankrupted the country.

With all of the losses and loan writedowns being reported by large banks like Citi and JPMChase due to poor investments in subprime mortgages, and the financial industry's constant calls for more taxpayer-funded bailouts, the question begs to be asked. Where do these companies get off donating millions of dollars to politicians and then asking for billions of dollars of bailouts? The entire stock market is now just a casino, where companies pour in millions of dollars to the Washington slot machine, hoping to receive payouts in the form of tax breaks, direct subsidies, and bailouts.

One wing appoints to the Treasury Department a "lifelong Republican from Goldman Sachs who started his career at Merrill Lynch." The other appoints to the Treasury Department a "lifelong Democrat from Merrill Lynch who started his career at Goldman Sachs. "The only change we can believe in is that, with Democrats in charge of the legislative and executive branches, it will be their wing of the bigger government party that decides which corporations deserve the transfer of wealth.

Every bailout the government has given to the banking system has been designed to stabilize the housing and stock markets, keep access to credit open, and keep people in their homes. But despite these stated goals, all that has happened is the banks are hoarding the free money, jobs are still being lost, and homeowners are going into foreclosure in record numbers.

Banks and the government worked together to enrich themselves through the real estate boom and turn communities into dumping grounds for easy loans. Now that the bubble has burst, banks and the government have been working together to ensure that only the people in those pump-and-dump communities feel the effects of the meltdown.

But it is not just that nothing is being done to help people stay in their homes. The government has come up with numerous programs ostensibly designed to help people stop foreclosure in certain instances and help borrowers work with lenders to modify mortgages.

An even worse problem, though, is that these programs take money from everyone else through inflation to help a very, very small number of homeowners. And if the programs are ineffective (which they have been so far), they may actually cause more people to face foreclosure.

All of this inflation where the government prints money and throws it at banks will also result in higher prices down the road. The banks are hoarding the money now in order to cover future losses they know are coming from other bad investments, but eventually they will begin making poor loans again, inflating another bubble before another collapse.

One argument that has been made is that it is far too difficult to throw small amounts of money at hundreds of thousands of homeowners to stabilize the system. So the government throws large amounts of money at a few small institutions, which is supposed to help everyone by maintaining faith and support of the financial system.

The problem is, these banks, once the government bails them out, have absolutely no incentive to work very hard with homeowners to save homes from foreclosure. With essentially free money, banks can sit back and do nothing, crying for more money when more people face foreclosure.

And this is exactly what it seems the banks are doing. Create a crisis, deliberately fail to respond to the fallout, cry for a government handout, use the bailout to act even lazier, not respond to further fallout, cry for more handouts, and so on.

Also, the few government programs designed to help homeowners work with their banks put restrictions on the lenders and require them to recognize losses on delinquent loans. So obviously, the banks are very concerned about having to admit to even more losses caused by bad mortgage loans, which might drive their stock prices down.

There is no real incentive for the lenders to take losses on loans and work with borrowers to restructure defaulted mortgages. In fact, there is a much larger payoff if the banks keep the foreclosures, do nothing to respond to them, and go to the government claiming a crisis that requires enormous amounts of taxpayer money to solve.

The bailout plans (especially the most recent $700 billion one) have required nothing from the banks other than that they be in serious trouble and need money. There are no restrictions and the banks can dump these bad loans directly onto the government, instead of having to work with homeowners.

The government has given the banks an incentive to keep making bad loans and then never address the problems caused by shoddy lending guidelines. The more people they foreclose on, the more free money they can cash in on from the bailout plans. So nothing will continue to be done to help homeowners stay in their homes.

For over two decades now, the banking system and financial investment companies have known that they can get away with looting the American people and foreigners throughout the world. Any time (every time) something goes wrong and the banks begin to lose money, typically after making obscenely unethical profits by partnering with governments, government steps in again to rescue the banks and prevent failure.

But every time that the government steps in to rescue banks from poor foreign or domestic investments, it is the people who pay for these mistakes while bankers learn how to improve their abilities to loot the taxpayer. Since at least the 1980s, banks have been practicing how to inflate bubbles, create malinvestment, take the easy profits, lose a little bit of money, and threaten to freeze credit markets until they are bailed out.

The Savings & Loan crisis of the mid to late 1980s was arguably a dress rehearsal for the subprime market crash. Typically, the failure of the S&L industry is attributed to the deregulation that began at the federal level and continued at various state levels. But the most important regulation increased; namely, the government insurance on deposited funds in thrifts was raised.

This ensured that depositors, both big and small, would be protected by the government if the S&L failed. Thus, thrifts began to expand rapidly using large deposits from Wall Street investment firms that they obtained through deposit brokers who promised large accounts for the highest interest rates they could obtain from the S&Ls.

Of course, this was an invitation to disaster, as financial firms only wanted the highest interest rates they could receive. Deposit brokers knew that the funds were federally insured and could put them into any thrift that would promise a high rate of return. What the S&L did with the money after that was the decision of the bank president and the directors.

Unfortunately, the decision often involved corruption, fraud, and sweetheart real estate deals (usually based on fraudulently appraised properties) that never were never developed. Small time criminals and even the Mafia became involved in numerous S&Ls, taking in brokered deposits in order to increase reserves, then making huge loans that were never paid back. If the mob was able to take over bank, it could raid it entirely (in a so-called "bust-out"); if not, it just took whatever was offered and then moved onto the next bank.

Once the thrift had been thoroughly looted, it was left to fail. The regulatory companies often stepped into the picture to declare the S&L insolvent, and then had to pay out on the insured deposits, costing the people hundreds of millions of dollars. Since the deposits were insured, the S&Ls were able to attract huge deposit accounts and then create fraudulent loans on these accounts, trusting that the feds would stick the people with the bills.

Although the small banks were allowed to fail in large numbers, the financial power centers that had initially gathered the large deposit accounts were quite protected by the federal government. They knew not to invest more than the highest insured amount in any one account, so virtually all of their money was recovered, even as they provided the easy money fuel that the criminals throughout the country used to loot the small banks.

Deregulation was not the root cause of the problem, although the S&L industry was deregulated in 1982 with the passage of the Garn-St. Germain Act. Insurance was increased from $40,000 per account to $100,000 per account, and the agency in charge of thrifts, the Federal Savings and Loan Insurance Corporation (FSLIC), was given the "full faith and credit of the U.S. government." Increasing existing regulations was the problem and it proved to be an invitation to mobsters and criminals to loot the industry.

The result of the so-called deregulation with a federal backstop against failure was that, by the end of 1988, just six years after the first legislation was passed, nearly 600 thrifts had gone out of business. Over 800 more were on life support by the feds, and the cost was estimated at $3,000-$5,000 per taxpayer over three decades.

With the current financial crisis, the blame is once again being given to deregulation of the credit market, allowing subprime mortgages to increase beyond any reasonable limit. But banks had learned from the S&L scandal and ensuing crises during the 1990s that large institutions would not be allowed to lose money, and they took advantage of this to begin pumping the housing market full of cheap money.

The Federal Reserve obliged by lowering interest rates and keeping them artificially low during the early 2000s, while Government Sponsored Enterprises like Fannie Mae and Freddie Mac bought up and guaranteed mortgage loans. Fraudulent appraisals and fly-by-night mortgage brokerages made a comeback and the subprime mortgage industry grew exponentially.

With house prices rising to stratospheric levels, it was doubtful that anyone with any reason or common sense left could not have predicted an end to the growth. Making money to people who had no jobs or money was never a viable business plan, but the large banks were able to generate fee after charge after commission by providing the money for these loans, buying them, securitizing them, and selling bonds.

When home values began to stagnate or fall, the subprime lending industry collapsed virtually overnight. But again, the feds would not allow the banking industry itself to feel the pain of well-earned failure, as it provided one new auction window after another and began injecting hundreds of billions of dollars into the banks.

Now the Congress has passed its latest $700 billion bailout and will be investing directly in banks. So far, this has not prevented every insolvent bank or financial institution from failing, but it has given the banks an incentive not to work with clients and victims to repair some of the poor loans, instead hoping for a larger federal bailout the more they are in trouble.

Homeowners get foreclosed on, while banks get to keep taxpayer money as well as the properties of former borrowers. There has been nothing to keep the banks from inflating another bubble and relying on federal insurance to bail them out, just as they did during the S&L crisis when government, the banks, and the mob worked together to take advantage of the FSLIC and pump and dump small thrifts.

In fact, the FDIC insurance limit has been more than doubled from $100,000 to $250,000 due to the bailout package. Although this may protect some clients from losses, most small clients of banks do not have any savings, let alone $100,000 or more. Raising the limit is another invitation to fraud, abuse, and scams designed to loot the federal insurance fund, and this is what will likely result from the bailout.

There is little that any new package of regulations can do to help repair the financial markets, but every new piece of legislation invites more criminals to exploit loopholes and grab a piece of the federal budget and insurance funds. The busting out of the S&L industry during the 1980s was repeated during the subprime mortgage crisis, and Congress is now doing everything in its power to inflate a similar bubble.

When the only regulation that remains is federal insurance against failure, then failure is invited and even encouraged. Raise the insurance limit and ensure even greater failures; invite even greater scams to exploit those limits.

Thus, is seems that only two possibilities exist to explain the actions of Congress in bailing out the banking system again. Either politicians do not learn even from recent history, and their ignorance requires their removal from office; or they are working with the scammers in banking and the criminal world to inflate these bubbles at the expense of the people, and their corruption requires their removal from office.

Most people still believe that one bank holds their mortgage. After all, one household is responsible for paying the mortgage, so one bank must be responsible for collecting the payment and foreclosing, if need be, right? Of course, that is not how the system works anymore. Homeowners still send their mortgage payment to one financial institution (instead of a fraction of the payment to hundreds of owners), since one company usually keeps the right to collect payments.

But most people just are not aware of the fact that mortgage loans have been packaged, sliced, repackaged, resliced, and sold to foreign hedge funds, pension funds, and other investors. This is especially the case for subprime loans, which no financial institutions were interested in holding because of the high risk of default. Homeowners, though, will usually go about making their normal monthly payment to whatever name is listed on the mortgage statement, thinking the bank they are sending money to actually owns their mortgage.

The widespread ignorance of the American people in regard to the current nature of the mortgage industry is specifically what politicians and banks counted on when attempting to push through their most recent $700 billion bailout package. Although most of the nation was against the bailout in principle, it was eventually passed as an $850 billion rescue plan. The US Treasury now has the authority to buy up any asset from anywhere in the world and pay whatever price it determines and then sell that asset later on to whomever it deems fit for whatever price it is willing to accept. A recipe for corruption if there ever was one.

Thus, Senator McCsin has proposed another bailout relying on the ignorance of the vast majority of American voters by putting forth a $300 billion plan that would allow the government to purchase mortgages for their face values and then set about adjusting mortgage balances and payment terms. This is simply an insane plan to stick the government with losses on mortgage securities that the banks would otherwise have to realize or negotiate with their clients. But apparently it is more profitable for banks just to dump worthless securities on the American people.

It is difficult for politicians to lose an election by putting their faith entirely in the hostility of the people to hearing the truth. As long as the media does not mention the mortgage securities business over and over again, people will hold onto their old, outdated beliefs that their bank actually owns their mortgage. But McCain's newest bailout proposal, mentioned during the most recent debate with Senator Obama, will require taxpayers to take on the full losses for a mortgage financing system that few of them are aware of even for their own home loans.

It would be impossible to unravel the mortgage securities investments now, after they have been sold and resold hundreds of times around the world. But now McCain seems to think that the US government should buy these toxic securities from any bank, foreign or domestic, that invested in them, renegotiate the terms, package them, slice them, and sell them back to domestic and foreign investors, with all of us taking the losses on the loans. All to prop up a quickly deflating housing bubble and prevent the quadrillion-dollar derivatives bubble from unwinding too quickly. Stabilizing home values at an unsustainable level will have the effect of prolonging the market downturn and making it that much worse.

Problem: mortgages were packaged and sliced up, with no one having a stake in the ultimate success or failure of the underlying loan.
McCain's solution: package and slice up these same mortgages, and resell them so that no one has a stake in their success or failure.

One of the main objections to the bailout bill (and nearly every Wall Street bailout that has been done so far) is that it will not stabilize the housing market, loosen up lending, or help prop up the stock market. Thus, there was no point to an Emergency Stabilization Act if it would not have provided any stability to the economy. But all such market bailout acts and government programs are not really designed to help solve the crisis; rather, they are an excuse to use a crisis to enrich the upper class and expand government power.

Few politicians seriously expected the latest $700 billion proposal, as well as the $630 billion the Federal Reserve pumped into the financial markets on September 29, 2008, to solve the underlying problems. No matter how many bad CDOs, MBSs, ABSs, and other mortgage securities the banks would have been able to unload, they would still avoid providing loans to average Americans to purchase or refinance homes. Housing prices are still declining from record heights and Americans are being squeezed due to rising prices -- they could not afford a mortgage payment even if banks were still lending money hand over fist.

The bankers and politicians, then, knew that any bailout would not help average citizen. On the contrary, they understand quite well that these bailouts help only the upper class who gets to use the inflated bailout money first. The money is pumped into banks and other financial institutions who benefit from the current value of new money before it has had a chance to make its way through the system and devalue the currency. Of course, once the inflated money does make its way down to the middle and lower classes, prices have already risen due to more dollars chasing relatively fewer goods.

Such an economic "crisis" as the markets have been experiencing is the perfect opportunity to government fixers to come in and provide essentially free money to the politically connected financial power centers. The Federal Reserve and US Treasury knew exactly what they were doing with this bailout plan -- they were meeting a "crisis" with "decisive action" meant to "calm the markets." Translation: they were responding to a problem they created by rewarding their friends using the same tools that would ensure another crisis would need to be responded to in the future.

In the short term, as long as confidence in the dollar remains relatively intact, the rampant inflation can continue. The financial interests can keep the markets from completely failing, trusting that half the country is still hypnotized by reassuring messages from Fox News and CNBC about the strength of the economy and the government's ability to solve the crisis. This allows the government to steal more of the people's purchasing power through inflation, although it will set up the long term collapse of the currency.

The elites are well aware that a serious recession is now the only thing that will allow the markets to repair. Americans, instead of borrowing money from abroad and exporting inflation to foreign countries in order to finance current consumption, will have to lower their standard of living, begin saving again, and rebuild the manufacturing base of the country. Until that happens, the country is living on borrowed time and borrowed money. Meanwhile, the upper class is destroying the dollar through inflation so that the rich can confiscate as much money as possible right now to accumulate as many assets as they can in order to meet the coming financial storm.

(updated below)

This past weekend, the philosopher kings from Congress and the Executive branch met in Washington with the high priests of finance from the Treasury Department and Federal Reserve to decide how best to transfer $700 billion from the American people to the financial firms which have spent the past few decades taking advantage of the American people. Despite nine out of ten people being against the bailing out of Wall Street, government bureaucrats met throughout the weekend to assure that a compromise would be reached and passed. The bill that these wise leaders came up with, named the Emergency Economic Stabilization Act of 2008, promises to propagandize voters into believing that legislators did not just capitulate to very nearly every single one of Secretary Paulson and Chairman Benanke's demands.

The propagandizing of the bill has already begun, with the Congressional Budget Office releasing a letter (PDF) outlining the major provisions of the Act. Upon reading the letter, it is striking how many times it is mentioned that the government will be able to recoup its expenditures of taxpayer money on the sale of the "valuable financial assets" it will be purchasing to bail out the banks. After all, how could the government lose money on these assets when the Wall Street firms that hold them now are going out of business by the day because of the perceived (lack of) value of the debt instruments?

Further, it has been widely publicized that Fed chairman Ben Bernanke has recommended the government buy these worthless assets at 100% of their face value. It will be almost impossible to make any sort of profit on such high risk bonds when they are purchased with no discount, even though they are currently valued by the market at close to $0. The CBO states that "The program would probably include assets that have the worst credit risks and hence are difficult to price." Wall Street says "Just trust us and buy the assets at whatever we say they are worth."

The possibility of a loss on the eventual sale of the assets increases with the higher purchase price to begin with. The CBO notes this in the letter: "an overall net loss is more likely if the government initially overpays," which is exactly what is being proposed by the Federal Reserve and which the Treasury now has discretion over. The government can buy intrinsically worthless assets at 100% of their face value and lie to the American people by telling them to expect a profit in the future.

But the CBO even admits that the present value of the assets the government is expected to purchase $700 billion worth of is unclear, let alone a future value at which they may be sold. And with future failures and more foreclosure across the nation, the value of the assets will drop even further. Wall Street is dumping its garbage on the American people and expecting them to pay for it, with the vague hope of an ambiguous profit sometime in the future. But the assets are illiquid because there is no value to them; if they had any worth, buyers would still be available.

The Act will create a Troubled Assets Relief Program (TARP) to cover (pun intended) private banks' losses from consumer credit backed securities. Although the primary assets to be purchased will be commercial and residential mortgage backed securities, the Treasury is authorized to purchase, insure, hold, and sell virtually any kind of financial instrument. "Under the TARP, the Secretary would have the authority... to purchase any financial asset at any price and to sell that asset for any price at any future date." From credit cards to car loans to subprime mortgages, banks can drop off any old defaulted security in exchange for cash from the Treasury department.

Another atrocious aspect of the bill is that this is not a one-time $700 billion appropriation; rather, the banking system will have a $700 billion line of credit directly with the American people. The Treasury can only have $700 billion of assets to hold at one time, but once it begins selling them, it can then purchase more delinquent garbage financial instruments up to the maximum again. As the CBO letter states, "The purchase price of all such assets outstanding at any one time could not exceed $700 billion (though cumulative gross purchases could exceed $700 billion as previously purchased assets are sold)."

Wall Street even benefits from the protections designed to prevent against asset price abuses. Banks that sold securities to the government would also have to provide warrants or senior debt instruments. But a warrant that allows the Treasury to buy company stock at fixed future price from a bankrupt firm is just as worthless as a CDO backed by subprime mortgages.

But the irresponsibility does not stop even there, as Wall Street is expected to insist on higher prices for its junk securities if it also provides warrants or senior debt instruments: "since the warrants or debt instruments would have value, Treasury would generally face higher prices because sellers would seek compensation for both the value of the troubled asset and the value of the warrant or debt instrument." This must be as opposed to the relative deal Treasury would receive if it just bought the worthless assets with no guarantees. Leave it to financial investment firms to require people to pay money for services that the people themselves are providing the firms.

There is also a thinly-veiled attempt by the government to provide a jobs creation program for out of work Wall Street bankers. As the CBO puts it, "the government would have to compensate the private asset managers hired by the Treasury. Those administrative costs are not included in the $700 billion limit on asset purchases." Private asset managers? Well, someone needs to be able to figure out how much to pay for the troubled assets -- why not hire the professionals who used to work at Bear Stearns or Lehman Brothers to consult with the government, right?

But the most important question is what is in the bill for homeowners, who have been hit the hardest by the collapse of the lending industry and the housing market? There is roughly part of one sentence in the letter mentioning homeowners, urging various buzzwords and voluntary participation. "Require the Secretary of the Treasury to take steps to maximize assistance for homeowners, including encouraging servicers of the underlying mortgages to take advantage of the Hope for Homeowners Program." If this could be termed absolutely worthless, it could at least not be expected to hurt foreclosure victims even more; but the Hope for Homeowners Act, like all government programs designed to address the housing crisis, only makes the situation worse.

It is little wonder that the vast, vast majority of people across the country are against this bailout of the wolves of Wall Street. These firms have already received nearly a trillion dollars in bailout money -- giving them trillions more and allowing them to unload toxic debt from their balance sheets is nothing more than the government's complicity in securities fraud. No one should support this bill, least of all congressmen and women who will be required to go back to their constituents and explain to them why Congress stole billions of dollars from the people to bail out the same firms impoverishing the communities which elected them to Congress.

UPDATE: The bailout bill has failed! Score one for the people of the country against the financial interests. By a vote of 228-205, the House of Representatives voted down the legislation. But of course, this is really only the beginning and defeating one bailout means that another one will quickly be proposed or implemented.

As point of fact, while everyone has been discussing the bailout, the Federal Reserve has, with no authority at all from Congress, decided to print up $630 billion and hand it over to the banks. This is exactly what 90% of the country was opposed to when given the opportunity to make their voices heard -- but the Fed has just decided to give the financial firms nearly $700 billion anyway!

Not to mention the fact that, as more huge banks fail, the FDIC will need its own bailout if purchasers for deposit accounts are not found quickly, as in the case of Washington Mutual. JPMorgan Chase bought its deposits for $1.9 billion, which was $1.9 billion the FDIC does not have and would have had to borrow from the Federal Reserve.

But the defeat of the $700 billion billionaire bailout is possibly the first legitimate ray of light for homeowners and Americans in general during the current economic crisis.

The response by the federal government to the collapse of the housing market has illustrated just how little power the people have and how corrupt the government and financial interests have become. It seems the further down the economic scale a family finds itself, the less assistance they can expect to receive from any source to mitigate the effects of foreclosure crisis. While banks and investment firms can expect to be bailed out of every bad decision they have ever made, homeowners have far fewer options and those renting a house or apartment that has fallen into foreclosure may have no alternative other than to move or be evicted.

The large banks and investment firms get inflated taxpayer money to bail them out of trillions of dollars of bad loans and mortgage securities. The latest proposal for a renewable $700 billion slush fund that the US Treasury will be able to use to bail out any company it sees fit is just another package of inflated money that will only prolong the economic crisis. The government will be taking money from all of us to pay for securities and assets that are illiquid because they are not worth anything. Tens of billions of dollars for Bear Stearns, $85 billion for AIG, potentially trillions of dollars for Fannie Mae and Freddie Mac, and now nearly a trillion dollars for any corporation that might need some extra money -- corruption and speculation are being rewarded on a massive scale.

In fact, this may be a lesson to both the financial markets and American consumers in general to rack up as much debt as they possibly can and then cry for a bailout. Corporations can engage in poor financial decisions, make promises they will never be able to deliver on, and put out shoddy products, knowing that the government will provide a backstop. Consumers, on the other hand, can borrow as much money as they qualify for and never pay back a dime, knowing that the banks they borrow from will receive their money anyway in the form of future bailouts. There is no longer any reason not to max out credit cards, declare bankruptcy, keep all the assets possible, and rest assured that the banks will be well compensated by the federal government.

Homeowners who are facing foreclosure, though, find that they have fewer options to save their homes than the banks to save their predatory profits. Borrowers who need assistance still have their money taken from them and in return receive a few token programs from the federal government and a lot of crocodile tears from officials who pretend to care. Most of the programs so far have been difficult to qualify for, do not address significant sectors of the housing market that are now failing, and are mainly completely voluntary for mortgage companies to participate in. It is no surprise that these programs have failed to stop foreclosure on any meaningful scale as of yet.

But at least homeowners are offered some sort of program, and more options are provided by private businesses, charities, and local governments. Renters, in many cases, simply get nothing from any source and are likely to be kicked out onto the streets if their landlord faces foreclosure. In the worst of all worlds, the tenants may not even be aware of the impending loss of the home if the owner of the building does not inform them, until they get the eviction notice from the local sheriff. Whereas banks can unload unprofitable assets onto us anytime profits begin to fall, and homeowners may have months in order to work out a solution to foreclosure, renters may have as little as one month to find other housing arrangements or move into their cars after a foreclosure.

The corporations and financial firms at the very top of the economic ladder are protected from failure and accountability, both personal and business, while homeowners are thrown a couple bones to chew on and renters are simply thrown out of properties they believed they had valid leases on. This situation is the result of government regulation and protection of a predatory system with a federal backstop against negative consequences. In effect, the government has told businesses that the more they take advantage of the people, the more they will be rewarded with even more of the peoples' money as bailouts. Everyone else, though, will be lucky to survive the depression and hyperinflation that the feds are putting into place in order to keep the profits flowing into Wall Street.

Thus far, all of the government plans to help save the housing market from collapse have been greeted with great fanfare by the media and politicians proclaiming their own expertise at solving the problems of the economy. However, few homeowners seem to have qualified for much actual assistance from the programs, and the requirements that have to be met have been strict for borrowers and lenders.

The Foreclosure Prevention Act of 2008, passed several months ago and signed into law by the president, is no exception. With the collapse of investment banking firms, the entire subprime lending industry, and Fannie Mae and Freddie Mac, it may be time to reevaluate such government programs that were designed to solve the problem and examine how the burdens placed on the parties to the mortgage have prevented homeowners from being able to stop foreclosure with government-backed loans.

There are numerous eligibility requirements for the Foreclosure Prevention Act of 2008, not just for the homeowners' monthly income and expense. However, it is usually the debt-to-income (DTI) ratio that precludes many of those who would otherwise qualify from obtaining federal help under such programs. With the FPA, the trend is no different, and the legislation actually prevents homeowners who truly need help from even qualifying for it.

On the original loan, borrowers must have had a DTI ratio above 31%. This means that the amount they were spending on their debt (housing and otherwise) must have been at least 31% of their gross income (income before taxes). For homeowners who obtained subprime loans, this will be an easy requirement to meet, but for those families who made conservative housing choices with affordable payments and then ran into a financial setback like a job loss or unexpected expenses, this requirement could prevent them from obtaining assistance, as they did too well of a job of managing their finances.

But there are other requirements related to income that are not determined by a simple calculation, and the subjectivity of some of these throws the entire purpose of the bill into question. Bureaucrats whose income and job longevity depend on the federal budget money flowing into their department may decide that it is better to cut expenses as close to the bone as possible, making decisions that result in their keeping the appropriated money instead of helping homeowners.

For instance, homeowners must prove that they can no longer make the payments on the loan as it is currently structured. They may be on time now or in default of the mortgage, but they must prove to the regulators that they are not applying for federal assistance just to receive a lower monthly payment. Of course, anyone applying for help is seeking lower monthly payments to prevent foreclosure, and it will be up to the self-interested bureaucrats to determine if they are able to make the regular loan payment.

Also, any second mortgage or home equity line of credit on the house would have to be paid off or removed from somehow before the FHA would agree to refinance the foreclosed property. The owners would not be able to obtain any new second mortgage except for necessary upkeep purposes for five years. With many of the subprime mortgage having been originated with a second mortgage to begin with (80/20 loans), this requirement will effectively lock thousands of families out of receiving federal assistance.

As with many of the federal programs designed to provide foreclosure help to homeowners, participation in the Foreclosure Prevention Act is entirely voluntary for lenders and will require mortgage companies to give major concessions in order to unload these foreclosed properties onto the government. It is inconceivable that many lenders will agree to these demands, moving forward with the foreclosure instead.

The main requirement lenders may balk at is that loans must be marked down to 90% of the current value of the property in question. For banks that made loans at 100% loan-to-value (LTV) on a house two years ago which may now be at 115% or higher due to declining real estate prices, this level of paper loss may be unacceptable. In fact, it would be just as easy to take the house through foreclosure, have it sold at sheriff sale, take the tax write-offs, and list the house for its fair market value.

Even worse, the Act requires banks to write off any penalties (including prepayment penalties) or fees charged to the borrowers that would otherwise be due if the loan was refinanced. In addition, the lender is required to pay 3% to the FHA a fee of 3% of the outstanding mortgage principal to have the privilege of dumping the loan onto the government. Depending on the size of the mortgage, it may cost far less in legal fees and other charges just to continue foreclosing.

Difficult requirements for homeowners to meet and onerous ones for lenders virtually guarantee the failure of government programs such as the Foreclosure Prevention Act of 2008. Its track record thus far has compared to the other plans like Hope Now and Project Lifeline in falling short of expectations to provide help to families in obtaining federally-guaranteed loans or qualifying for a reasonable mortgage modification. But it is just as inconceivable that the government will admit its programs actually encourage more foreclosures, as they will most likely be continued indefinitely, providing all the assistance of a parasite as they take money from citizens in order not to give it to needy homeowners.

The election process has always been less an expression of the democratic will of the people than a mass herding of uninformed voters tricked into choosing between two virtually identical candidates supported by the same large financial and corporate interests. Especially now, though, with foreclosure rates rising and more fraud in the mortgage markets being uncovered by the day, solving the housing crisis has become a political tug of war for both of the major candidates, John McCain and Barack Obama.

Both candidates have outlined plans to help homeowners facing foreclosure, and while few voters typically read through even such sparsely informational sites as the candidates' own websites, it can be seen from a short analysis of the proposed policies if either nominee will be able to provide assistance to the markets. The issues will be examined for each candidate, with the Republican nominee analyzed first.

Although the site says McCain's "approach to helping sub-prime or other financially strapped mortgage borrowers is built on sound principles," what it means is that the focus is on contradictory principals:

No taxpayer money should bail out real estate speculators or financial market participants who failed to perform due diligence in assessing credit risks. Any assistance for borrowers should be focused solely on homeowners and any government assistance to the banking system should be based solely on preventing systemic risk.

Thus, McCain would not bail out lenders, mortgage companies, or financial firms unless they had invested heavily in the subprime credit markets and their poor decisions would result in risk to the financial system overall. But this immediately raises the question of moral risk: If you were going to speculate, why not go all the way and leverage as much as possible, so if you failed, the government would have to bail you out to prevent systemic risk? Small speculators will presumably be allowed to fail, but the big ones will have their larger moral hazards rewarded by tax or inflation money.

McCain also proposes a HOME Plan designed to keep 200,000 to 400,000 homeowners out of foreclosure, but this is a small drop in the bucket of several million expected foreclosures nationwide. While such a plan may have an impact in certain local markets, with a general falling of home values across the country, saving an extra few hundred thousand families will do little to help the markets recover.

Eligibility for the HOME Plan is also strict and will preclude many borrowers from even qualifying for federal assistance:

Holders of a sub-prime mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30 year fixed-rate mortgage on the existing home.

While the owner-occupied requirement is obviously designed to avoid awarding speculators with financial assistance, the failure of speculators and investors is one of the driving forces of the housing crash. Subprime borrowers began to default, home prices stagnated, and speculators have simply walked away from properties, leaving the houses to foreclosure and the communities to endure further drops in home values. The foreclosure of these homes are entirely justified, but they will continue to contribute to a declining real estate market.

As well, McCain's plan's requirement for homeowners to prove creditworthiness at the time of the original loan may be quite difficult for subprime borrowers who took out stated income or no-doc loans and overstated the amount of money they made or the assets they owned. These homeowners will almost certainly receive no assistance from the government, as even politicians will not want to take on the risk of mortgage customers who never qualified for a loan in the first place. But with such a large percentage of home purchase and refinance loans over the past years being subprime, the fact that subprime borrowers will receive little help negates the goal of the HOME Plan.

Typically for political programs, at least one Orwellian Newspeak clause must be included, and McCain's policy does not disappoint. It states, "Any policy of financial assistance should be accompanied by reforms that promote greater transparency and accountability to ensure we never face this problem again." Obviously, the several tens of thousands of pages of federal regulations already on the books will not be adequate to ensure corporate transparency, so thousands more pages will be added, increasing the costs to keep up with the new laws, increased costs which will be transferred to mortgage borrowers.

Homeowners who took out loans during the boom and bubble were given dozens of pages of disclosures relating to the terms of the loan they were applying for. Shockingly few of these borrowers ever read or made sure to understand the documents in full, though, and even corporate lawyers have been unable to pierce the veil of the legalese and explain in ordinary language how the mortgages actually work. More disclosures will just increase the likelihood that loan customers sign the stack of papers in front of them without reading as quickly as possible in order to get the loan they have been sold by the broker.

Again, as with the Democratic plan to solve the housing crisis, little is proposed to hold the Wall Street financial firms accountable, or even acknowledge their existence in the crash other than as victims of shady, lying borrowers. But these investment firms provided the lines of credit to the largest lenders, which made subprime loans, which then sold the loans back to Wall Street, which securitized the loans, which then sold the toxic mortgage-backed securities to funds around the world, taking in fees at nearly every step of the process. Of course, though, these are the firms whose failure would cause "systemic risk" to the financial system and which also donate heavily to the Republican and Democratic parties, and will be given generous bailouts by the federal government to ensure they do not fail.

Every time government officials successfully trick the people into voting to give government more power and continue its existence for another four years, special interest groups and power-hungry bureaucrats are given nearly free reign on plundering ordinary citizens. With a housing crisis already underway, though, tricking homeowners into voting for a particular candidate for president is a high priority for both Barack Obama and John McCain, each of which has available on their websites an outline of a plan to solve the foreclosure mess.

The small number of people who actually wish to inform themselves of the issues before going to vote may wish to read the candidates' proposals, only a sample of which will be detailed here. The issues will be examined for each candidate, with the Democratic nominee analyzed first.

From Obama's website comes this about the subprime mortgage industry:

Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama's STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.

The subprime industry has been largely self-regulating at the highest levels: when Wall Street investment firms made billions of dollars in fees generated from tricking homeowners into loans they could not afford, the industry took off. As soon as defaults began to rise, buyers for CDO, ABS, MBS, and other similar mortgage-backed bonds disappeared as investors realized that lending standards had been eliminated in an effort to increase revenue. By now, Obama's plan to regulate the subprime industry is a moot point, as hundreds of lenders have gone out of business after being forced to buy back their terrible loans which defaulted almost immediately upon being made.

While holding lenders and mortgage brokers accountable may seem like a good idea, it does not go nearly far enough to hold those truly responsible for the foreclosure crisis accountable. Wall Street firms provided the money that was loaned, and they bought the mortgages from the lenders to securitize and sell to investors. Without holding the Bear Stearns, Morgan Stanley, and Lehman Brothers of the world responsible, new bubbles will just appear in other market sectors as the subprime pump-and-dump strategy is followed again.

And Obama's plan does not even address the true first cause of the mortgage bubble: artificially low interest rate policies from the Federal Reserve under Chairman Greenspan. A historically cheap money policy and liquidity injections into the financial system could do nothing else than create a bubble somewhere, and real estate was all the rage. At worst, the Fed should have risen interest rates to deflate the bubble; at best, the Fed should be abolished for its role in creating and inflaming every market bubble of the past nearly 100 years.

Another proposed regulation is this:

Create Fund to Help Homeowners Avoid Foreclosures: Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama's increased penalties on lenders who act irresponsibly and commit fraud.

Even hundreds of millions of dollars in fines against mortgage companies only comes out to an extra few hundred dollars at best of assistance for the millions of homeowners facing foreclosure, and that is not if the mortgage assistance fund is depleted by bureaucrat salaries. Also, any new potential penalties will be factored into mortgage rates and fees by the lenders, who will push the extra contingent liability costs onto the end consumers. It can only be assumed, as well, that the rest of this fund will be paid for through more inflation and borrowing from the Federal Reserve.

Disclosure rules are also a focal point of Obama's plan:

Mandate Accurate Loan Disclosure: Obama will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.

Mandating more disclosures is quite possibly the most useless proposal so far, as home buyers never read their disclosures anyway, and brokers who want to generate fees and homeowners who want a house they can not afford will sign or say anything to qualify for the loan they want. Mortgage applicants already receive dozens of pages of disclosures, even ones that specifically state they are getting an ARM loan and how ARM loans work; more disclosures will just add to the paperwork that is signed, never read, and filed away in a drawer for years until there is a problem making the mortgage payments.

Some of the more positive aspects of Obama's plan include a small tax credit and allowing federal bankruptcy judges to lower mortgage balances for homeowners owing more on the loan than their home is worth. While the tax credit comes out to around $500, any tax break is better than no tax break, especially for lower income workers. And allowing judges to lower mortgages in bankruptcy cases would give borrowers an incentive to keep paying on their property if able, rather than walk away from a house in foreclosure.

Unfortunately, Obama's housing crisis plan indicates his close alignment with the financial power centers on Wall Street. His plan will make the people pay for the bailout of investment firms by funding government bailout programs that will have to be paid for by more inflation from the Federal Reserve. As well, he wants to hold the lower-level facilitators (out of business lenders and out of business brokers) of the (out of business) subprime industry accountable, while not touching the loan funding and securitizing machines on Wall Street, from whom he has received many campaign advisers and contributions.

From the first government mortgage bailout to the latest one, it seems that no matter how hard the central planners in Washington attempt to alleviate the suffering of millions of American homeowners, the foreclosure crisis rages on. The failure of every one of these plans so far indicates that, no matter how much money bureaucrats take from one homeowner to give to another, the financial shock that began a year ago will continue at its own pace. While the reasons for any government failure are too numerous to count, here are the top six why the housing bailouts have not helped.

1. Income documentation. Many of the plans, to prevent speculators or liars from cashing in on public welfare for foreclosure victims, require borrowers to verify they have enough income to make reasonable monthly payments. With over half of subprime borrowers expected to have overstated their earnings in order to qualify for higher loan amounts, documenting their real income will instantly disqualify them from any government programs. Both FHASecure and the new Freddie/Fannie bailout package require borrowers to verify their income, which is why foreclosure of liar's loans and those purchased by speculators are still driving the housing market crisis.

2. Minimum equity requirements. FHASecure and the latest bailout of the Government Sponsored Enterprises require that homeowners have at least three percent equity in their properties in order to refinance to a government guaranteed loan. Either the lenders will have to write down the loan to a lesser amount, or the owners need to make a down payment. The problem is that mortgage companies do not want to take such a large loss on a house when it is just as easy to go through with the foreclosure and attempt to sell on the open market.

3. Second and investment homes excluded. Another problem with many of the government programs is that they are designed only to help with a primary home. Rental or vacation homes are disqualified from any public funds. While this may be a good idea to keep speculators' hands out of the public cookie jar, it shows a failure to realize that rampant speculation drove the housing bubble -- leaving them on their own to suffer now necessarily means that prices will come down and homes losing money for investors will be abandoned.

4. More expensive solution offered by banks. With Project Lifeline and the Hope Now Alliance, lenders were recommended to offer homeowners in trouble a mortgage modification or repayment plan in order to get back on track. Unfortunately for foreclosure rates and borrowers, most banks simply offer a payment plan, doing nothing to modify the terms of the loan to be more affordable. Few homeowners struggling with their current payment are able to pay even more per month to repay the arrears, which is the biggest reason these programs have been utter failures.

5. The problem of second mortgages. For home equity line of credit and second mortgage holders, the options offered by the government amount to one solution: write it off. Understandably, few mortgage companies are willing to do this; although they know there is little chance they will get anything from a sheriff sale, the chances are higher than with simply giving up on the loans. The newest bailout package for Fannie and Freddie is not available to homeowners who can not shake off their second mortgages; while subprime loans, which are foreclosing at the highest rate, were typically made with automatic second mortgages at the time of purchase (80/20 loans).

6. All programs are voluntary. But by far, the biggest problem with all of the programs offered to date by the government is that they are 100% voluntary for lenders to participate in. If the mortgage company believes it will make more money in the end by foreclosing, there is nothing to force it to help homeowners stop foreclosure through any program. In fact, with the Federal Reserve coming to the rescue of the banking system over and over again with hundreds of billions of dollars of free money and loans, it may be in the best economic interests for lenders to let homeowners fail in droves, crying that the banks are the victims of predatory borrowers and lining up for more corporate welfare than homeowners could ever dream of receiving.

Although it is quite noble for neighbors and family members to wish to help out homeowners in distress, requesting government to step in and fix the foreclosure crisis will only produce more failed programs and more empty houses. For an organization that claims on monopoly on the use of force, the federal government has been tellingly reluctant to force banks to assist borrowers when the loans that have driven the economy off the cliff were clearly, for the most part, predatory mortgages. For bureaucrats who have no problem telling foreign countries how to live, manipulating interest rates in the American economy, and spying on every person in the country, they seem not to want to turn their power on the large financial interests. But is that an indication of where the real power lies?

One of the greatest challenges for the country in attempting to put a stop to the foreclosure crisis and start investigating some of the bad loans and predatory actions by the banks has been the unwillingness of governments to use their force to go after lenders. On the contrary, the federal government seems more interested in token gestures meant to reassure voters, while quietly handing out billions of dollars in loans and tax breaks to giant corporations. Homeowners who want to influence the government for a helping hand or just investigations into the predation, therefore, must set their sights a little lower.

Unfortunately, due to the gravitation of power into the hands of the federal legislators and executive branch, corruption has bred and been left to grow in Washington, which is now completely owned by the banking system and corporate interests. This should not be too much of a surprise, given the nature of government to keep growing and further regulating the day-to-day lives of the people. But it has also meant that influencing the federal government to turn its backs on the corporations and start working for people will be near impossible.

Even state governments, depending on their size, may be only slightly more susceptible to movements to help homeowners stop foreclosure and hold predatory mortgage companies accountable for shady loans. Officials at the state level have also, for the most part, been bought off by the local multinational corporations. However, it may be more effective for homeowners to seek out their state representatives who understand how much the foreclosure crisis is hurting communities all across the area. State investigations of some lenders have already begun, but it will take a more comprehensive effort for the truth to come out of the engineered housing bubble.

While state governments may be able to hold some lenders accountable for bad loans, this still may not help the average homeowner stay in their home right now. Until the banks are forced to give up foreclosure proceedings on predatory loans, which is unlikely to happen, homeowners will still be on their own to defend against a lawsuit, whether the mortgage was fraudulent to begin with or not. This is where a strong role for local governments comes into play, and this level of government also has the most to lose from a foreclosure crisis devastating the country.

Although the local court system receives substantial extra funding from a doubling or tripling of the foreclosure rate in an area as banks pay filing fees to begin lawsuits, this pales in comparison to the revenue lost through property taxes. Counties finance their operations heavily through the ad valorum taxes imposed on all homeowners, but a community where property values are falling and people are moving out of the area can not justify keeping taxes high. In a rare instance, what is in the interest of homeowners is also in the interest of the local government, and this may give homeowners a real ability to effect meaningful solutions.

Community options to mitigate falling property values, help homeowners find solutions to foreclosure, and prevent crime rising due to more abandoned properties will also prove to be more creative and longer-lasting than just a taxpayer-funded bailout approved by Congress. While more stimulus checks may help some homeowners for an extra month, unless there is a fundamental change in how money and the lending industry works in a neighborhood, there will be no long-term benefits. But this does not have to mean more government regulations, either, and it may be better for government to do little else than hold banks accountable for their lending misconduct.

In fact, local solutions based on the ideas put together by businesses, charities, or religious centers may be more preferable than just more laws written by county legislators. These private groups may be able to put together funds or new programs to provide assistance to struggling homeowners, while the governments enforce the laws against mortgage companies taking advantage of customers. In such cases, the dual effect of helping people weather a financial storm, as well as holding large banks accountable, may keep property values as high as they have ever been in certain areas.

(Even local attorneys, if they can be persuaded to stop assisting the lenders in foreclosing on homeowners, may get in on the action. For instance, they may help in certain cases to defend homeowners against an unlawful foreclosure and gain positive press coverage about their efforts to preserve wealth in a community. After all, their property values are falling just as much as their neighbors, whose houses these attorneys are helping the banks steal.)

Influencing government and creating positive solutions to the foreclosure crisis may sound like a daunting task for homeowners or other concerned citizens. While the federal and state governments may be difficult to impossible to persuade to consider the interests of foreclosure victims, counties may have the most power to help out because they have the most to lose when property values are plummeting. While the feds and the states may do some investigating into the lenders' actions, the effects will not help homeowners right now; only they, through their community groups and their local governments, can become a change that will ensure a more positive direction for the mortgage lending industry.

The media, politicians, and armchair real estate professionals seem to have begun making a part time job of analyzing what should be done to solve the foreclosure crisis. The debates so far, however, have been somewhat limited to the possibility of the government stepping in and providing relief to homeowners, or doing nothing and allowing home prices to crash. Instead of expecting more from the government, it would make far more sense for the bureaucrats to scale back many of their activities in all aspects of the average person's life.

One simple proposal may just be getting rid of the personal income tax altogether. While no one would mourn the loss of the IRS, those who fear that all federal government services would dry up should realize that the government could be the size it was in 1997 if the income tax were eliminated. Also, even though many people never pay anything to the IRS and simply receive a refund every year, it would be much better for those people to have that money in their pockets all year to help pay for mortgages, transportation, or food. Giving an interest-free loan to the government all year when one is unable to pay back their own loans makes little sound financial sense.

Politicians should also stay out of the housing crisis altogether, as this is not a problem that we can legislate our way out of. The Orwellian named Foreclosure Prevention Act was a complete joke and illustrative of the impossibility of just creating more laws and acts to solve market problems, designed to take more tax money from homeowners in order to hand out tax breaks to home builders, banks, automobile companies, and the airline industry. Leave it up to the elected lawyers to redefine the phrase "foreclosure relief" to mean "foreclosure victims relieving corporations of their tax burdens."

As well, unless the Iraq War and our other overseas commitments are scaled back enormously, the perpetual borrowing and inflating needed to sustain the perpetual war industry will bankrupt the country. Spending over a trillion dollars every year on military bases, covert operations, no-bid weapons contracts for projects that are never completed, and subsidies for defense contractors creates an unsustainable drain on the productive capacity of society. There are many more goods and services that people want when they are at peace than when their efforts must be spent on repairing destruction.

A final idea would be for the federal government to begin to transition towards real, sound money, based on gold or silver or some basket of commodities. While it is unlikely that this will happen without a large-scale economic meltdown and reorganization, private citizens can invest in gold and silver coins on their own. Local governments, too, may wish to look into instituting their own local currencies, to put more direct control of the money supply back into the hands of people and communities. This would also strengthen towns and counties that have been hit hardest by lack of money or disappearing production and jobs.

Simply handing over one's tax dollars and then demanding a "solution" to the housing crisis from Congress is a sure way to an even deeper economic recession. As evidenced by the "Foreclosure Relief Act," it is clear that politicians spend more time thinking of how to trick the people into supporting more corporate welfare than actually addressing how to help homeowners stop foreclosure. Unfortunately, it may be that the country itself will face bankruptcy very shortly and the dollar will face a total collapse; therefore, the most effective solutions will be found with private citizens and in local communities, rather than the bureaucrats in Washington.

(updated below)

One of the casualties of the collapse of the subprime mortgage industry that has not been talked about to any significant degree is that of the pension funds. Pension fund managers were convinced by Wall Street investment firms to put retirement money into supposedly safe mortgage securities. With the fallout from the record default rates, though, these funds have lost much of the retirement funds of workers.

Both public and private workers have been affected by this, and every person now facing foreclosure should check with their employer that their pension fund is relatively secure. No one wants to face both a current financial hardship and have to work on repairing a retirement account that has been destroyed by the poor financial returns generated by betting on poor people paying mortgages they could never afford in the first place.

One question that remains to be answered, however, is what public workers will do once they find out their retirement money has disappeared. Bureaucrats at all levels are often highly dependent on the fruits of other people's labor and live parasitically off of the productive of society, with their sense of entitlement growing as they exercise more coercive power over the people they are supposed to be serving. How will they react to the possibility of having to work longer than they expected or retire on less than would be necessary to maintain a wealthy lifestyle at the expense of the lower and middle classes?

There are several possible targets for local governments, which have been hit hardest by the subprime pension fallout, to attempt to hold accountable. The first, and least likely, will be that these governments try and go after the banks and investment companies that originally sold them on the safety of investing in mortgage-backed securities. These are the same banks that are responsible for putting many of the bureaucrats in power (through campaign contributions) and funding government salaries (through filing fees in the courts, providing loans to government, and property taxes ), so it is unlikely local governments will target their most concentrated source of power directly.

Thus, the local governments will most likely avoid going after predatory banks, even if they operate branches in the community. Going after these lenders by proxy is much more likely, starting with the replacement or prosecution of the pension fund managers. Although the fund managers made enormously bad decisions with how to invest people's retirement money, many of them may have been just as taken in by the shady promises of security that tricked individual investors. While the largest state or big city pension fund managers may have worked with the banks to bilk people out of money, smaller governments were probably taken completely by surprise. This will not protect them from the self-preserving wrath of government, however, and there will likely be more unemployed fund managers after the fallout is more widely known.

The final target of governments to stop the bleeding of their pension funds due to the foreclosure crisis will be the people themselves. It may become much more difficult or costly for homeowners to stop foreclosure, with governments coming up with all sorts of mandatory programs to force people to keep paying their mortgages. Unfortunately, many of these programs will be self-destructive for the governments, either increasing the burden placed upon homeowners or unduly prolonging the foreclosure process to put off the inevitable. As local governments feel the squeeze of decreasing property taxes, they will try and raise funds other ways (more speeding tickets, county income taxes to reach former homeowners now renting, and so on), which will just push more homeowners into foreclosure.

With more county and city governments facing budget shortfalls, the pressure will be on to find more sources of funding and simultaneously reducing the burden on homeowners so that they can keep up with their mortgage payments (and property taxes, more importantly). Governments will have little option other than to reduce spending on services or raise taxes and fines. When the disaster in public pension funds becomes more widely-known, however, the bureaucrats, with inflated senses of entitlement, may be set off into a panic of grabbing revenue wherever they can. The end result will be a deepening spiral of foreclosures, tax increases, more foreclosures, and more tax increases, until there are far fewer homeowners and government services in communities.

Update: Less than a year after the original blog was posted here, pension across the country are running out of money already. In Chicago, the Chicago Transit Authority has been paying out more in bonds (designed to close a gap) than it has brought in (furthering the gap). CALPERS in California, the largest pension fund in the country, lost 27% of its value last year.

All of the voluntary programs put forward by the government to help homeowners in foreclosure have simply given banks an excuse to state that they are working with people while taking homeowners in record numbers. More meetings to discuss these voluntary programs will simply be a waste of public money and a further indication of just power much more powerful the banks are than the people or the politicians.

Now, the US Treasury Department, after providing all of those securities to the Federal Reserve so they could bail out mortgage lenders and servicers, has called for more voluntary guidelines. The Wall Street Journal reports that, "Officials have called a six-hour meeting Tuesday with banking officials to discuss adopting a uniform, but voluntary, set of criteria to speed the time it takes qualified borrowers to modify mortgages they can't afford." As anyone who has ever been in foreclosure or worked with people losing their homes can attest to, uniform measures are nearly useless in dealing with the highly individual financial situations people find themselves in that lead to foreclosure.

This meeting is part of the government's Hope Now program, which is a voluntary effort by about a dozen of the nation's largest mortgage companies to work with homeowners on loan modification programs. The results of this program, though, have been less than stellar: "Lenders reworked 502,500 loans through Hope Now in the first three months of the year, according to industry data. Of those, the terms were modified on 179,500." This is far worse than the average loss mitigation company's track record of renegotiating mortgages.

This voluntary program that has a success rate just over 35% should be compared to similar efforts that had been made by mortgage lenders before the Hope Now alliance was started. Mortgage companies have always been able to offer modifications with or without the institution of the Hope Now program, and a 35% success rate means that 65% of the people seeking help are left to find other solutions to stop foreclosure. It is inconceivable that banks would turn down such a large percentage of their clients, and certainly does not reflect our experiences of negotiating for modification or repayment plans.

The absurd aspects of this new set of guidelines, though, are almost too numerous to count. Take for example, the fact that "The new industry guidelines, if adopted, wouldn't be binding and couldn't be enforced by the government." Then why, it may be asked, is the government doing anything at all? And will their attempts to negotiate with the largest banks be any more successful than the average homeowner's attempts at qualifying for a mortgage modification?

And a further attempt to quiet down the people while the banks steal their homes can be found in the new form letter requirement. "One possible industry 'best practice' would have lenders acknowledge the receipt of any request for a modification within five days of a request by homeowners." This is in response to the complaint by people in foreclosure that it can take the bank several months to report having received a request for help at all. Of course, banks are experts at sending out form letters, and it is the actual decision of whether or not the plan has been approved that is often delayed for months, many times until a few days before the home is sold at a county sheriff sale.

Thus, the banks will be setting up a new step in the process of stealing a home through foreclosure that will leave them off the hook even for informing homeowners of the results of their modification application. The mortgage company can simply send out a form letter acknowledging receipt of the workout package, and then continue to delay making any decision for months while interest, late fees, and court costs continue to accrue. Another "unintended" consequence of these government guidelines will be the further enrichment of banks and attorneys under a veneer of legitimacy because the lender has followed the industry "best practices."

It seems that many homeowners are expecting some saving grace to be passed down from the federal government to stop the crisis of defaulting mortgages. Based on the track record of government programs so far, however, it may be far better for people in financial hardships to rely on their own resources than hope for a bailout.

In fact, the government programs that have already been put into place or are being proposed are almost entirely useless for homeowners and may be even more destructive to the weak economy. Too many of them are nothing but voluntary programs that involve only a handful of lenders not offering any new solutions.

But even programs of this nature are not as outright destructive as the ones calling for tax breaks to airline companies, automakers, banks, and homebuilders, at the expense of foreclosure victims. Taking money from homeowners to give to banks in the form of tax rebates and then labeling it "Foreclosure Prevention" is hypocrisy at its most blatant.

If homeowners, due to any of the irrational fears previously discussed, can not make themselves pick up the phone and call their lender, they may want to consider hiring some private assistance that they trust. This may be a loss mitigation company, foreclosure loan provider, bankruptcy attorney, or any other source. Otherwise, the chances are high that they will procrastinate too long and the mortgage company will work hand-in-hand with the government to push the house closer towards a sheriff sale.

Government is force; the foreclosure process is a classic example of this fact. Of course, that force is not used against government's funding source, the banks, which explains why the banking industry will continue to get bailouts and voluntary programs while people are involuntarily forced out of their homes by banks, judges, and county sheriffs.

Therefore, it would be a mistake for any homeowner to hope too much for a bailout from the central government to stop foreclosure. Not only is it not coming, it is being actively planned against by the corporations and industries that profited most from the housing boom and will use their political influence to profit from the crash.

Unfortunately, government representatives are not our leaders. They are our employees. And they are like the employee who steals from the business owner and then demands a raise for proposing unique solutions to theft he is actively engaged in.

The inflation and subsequent collapse of the residential real estate market was facilitated by the Federal Reserve over nearly a decade. From the late 1990's when the technology bubble burst until early 2007 when investors began to realize how much bad debt had actually been created in the housing market, interest rates were kept artificially low, while capital poured into suburban sprawl and subprime mortgages.

The leader of the Fed and manipulator-in-chief of the economy during the primary boom years was Alan Greenspan, who once believed in things such as the gold standard, the impossibility of sustaining a housing bubble, and speaking to Congress in riddles and financial jargon. His main adversary in the Congress was Ron Paul, who still believes in things such as the gold standard, the impossibility of sustaining any manufactured market bubble, and is a master riddle-solver himself with a strong Austrian economics background.

One of the great mysteries of the Greenspan legacy has been his rumored doctoral thesis for New York University, compiled and written in 1977. Certain revealing parts of the 180-page thesis have been reported on by Barron's news organization. The parts reviewed by Jim McTague at Barron's show that Greenspan most likely understood and could have predicted all of the events he was putting into motion by inflating a massive housing bubble.

A most intriguing quote from the article shows how the master manipulator knew what would happen when the dotcom bubble burst and all that capital needed a new home in residential housing. "Greenspan also broke new ground in the introduction to his thesis, where he noted that homeowners were refinancing for larger amounts than their original mortgage, in essence monetizing increases in their home's market value and spending the excess cash on goods and services or putting it into savings." This was long before double-digit rises is home values, subprime mortgages, no-doc loans, Home Equity Lines of Credit (HELOCs), and inflatable-value McMansion-burbs, but is a perfect representation of what happened during the real estate boom of the late 1990's and early 2000's.

Ron Paul, as well, understood the consequences of the housing bubble. In a speech made into the Congressional Record on September 6, 2001, he stated, "Refinancing especially helped the consumers to continue spending even in a slowing economy." The same monetization of rising property values that Greenspan was concerned about became Greenspan's policy when looking for a new bubble.

Neither Paul nor Greenspan believed that a continual cycle of rising home prices and refinancing could continue, however. As Greenspan himself claimed in his doctoral thesis, "There is no perpetual motion machine which generates an ever-rising path for the prices of homes." Paul, in the same entry into the Congressional Record as referenced above, agreed: "This, too, will burst as all bubbles do." And the more inflated the bubble became, and the more capital was misdirected into it, the greater would be its fall.

Who, though, could have predicted such a large crash of the real estate market, with property values falling to lower than the replacement costs of the buildings? Well, Greenspan, for one. A "break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building," he wrote in the thesis that earned him a well-deserved Ph.D; well-deserved due to his uncanny ability to predict the consequences of policies he would set in place and disclaim responsibility for later on.

Paul also knew that malinvestment caused by government intervention in any sector of the economy would lead to disaster. Making a statement before the Financial Services Committee of the House of Representatives in September of 2007, Paul said, "The housing boom was caused by the Federal Reserve's policy resulting in artificially low interest rates. Consumers, misled by low interest rates, were looking to consume, while homebuilders saw the low interest rates as a signal to build, and build they did." The larger the bubble, the more malinvestment would occur, and the more severe the correction would have to be.

Most joking aside, the example of Alan Greenspan as Federal Reserve chairman should serve as a strong warning against putting anyone in power who believes they understand how the economy works. Greenspan understood and believed in libertarian ideas of economic manipulation and Austrian economics, and then spent nearly two decades at the Fed working against every one of those principles.

It is not so much that he went back or overturned what he believed in to become the most successful bubble-inflator in history -- far worse than that, he used his understanding of how a free market can work in order to further the cause of socialism. In fact, it would probably have been far less destructive to have someone in charge of the Fed who had admittedly no understanding of how markets work at all, rather than someone who understands free markets and the prosperity they help engender but psychopathically worked in the opposite direction.

Ron Paul, on the other hand, stood by his principles and had the audacity to challenge supposed libertarian and Austrian economics advocate Greenspan. For this and his continuing adherence to traditional American beliefs of individual liberty and free trade, and his opposition to government manipulation and corporate welfare, he has been marginalized by mainstream media and colleagues in Washington.

Using the economy as a laboratory of how to turn a firm understanding of the economy on its head and foster socialism and corporatism, mad scientist Greenspan has further impoverished us all to enter into and direct the economy from the sacred halls of the financial elite. Paul, by advocating true freedom and less government, has been shunned by the government-corporate media and the brainwashed masses, but his ideas and influence are being embraced by an ever-expanding group of people waking up to the evils of government manipulation and psychopathy of power.

If anyone still doubts that government only intervenes in the economy to protect itself and reward politically-connected corporations, the ill-named Foreclosure Prevention Act should dispel any lasting misconceptions. The proposed bill would essentially steal money from homeowners and the general public in order to reward corporations and make the foreclosure process easier and more profitable for lenders.

Possibly the most corrupt part of the bill, though, is the large list of tax breaks that will be enjoyed by various industries -- but not homeowners actually facing foreclosure. Banks, mortgage companies, home builders, automobile companies and even the airline industry receive tax breaks and incentives.

For the builders, one of the provisions of the bill would allow them to go back in time to record current losses against their massive profits made during the boom. As these home building companies face bankruptcy due to the slowdown in the market, they will be able to claim tax refunds against past profits. This is a direct subsidy by government to corporations, allowing them to backdate losses they are experiencing as a result of the housing bubble they helped inflate.

Tax breaks for airlines and automakers make even less sense in the context of a bill ostensibly said to help families stop foreclosure. Both General Motors and Ford Motor Company will be able to collect nearly $40 million in tax credits. How this fits into a plan to prevent more homeowners from facing foreclosure is unexplained, especially as this provision of the bill allows the automakers to claim credits they would otherwise not be able to take because they did not pay enough in taxes in recent years to qualify.

The Foreclosure Prevention Act is little more than another example of hypocrisy by legislators to reward the same corporations who are most responsible for causing the housing bubble. After reaping record profits during the inflation of the market, they are now using money stolen from the people by the government to increase their profits on the way down.

The results of the fallout of the housing market, fueled by years of easy credit, nonexistent lending qualifications, and desperate attempts to pump and dump residential real estate have led to a crisis in the American economy. There is now one choice being presented to the people of the country, the so-named Paulson Plan, which is offered by the same financial power centers that created the foreclosure crisis and have benefited most from it.

The Paulson Plan, named for US Treasury Secretary Henry Paulson, former CEO of Goldman Sachs, represents a further consolidation of power in Washington and its surrogate/master financial institutions. Existing groups will be given further power, such as the President's Working Group on Financial Markets and the Federal Reserve, while new departments to regulate the loan origination industry will be created.

The Federal Reserve, more responsible for the housing crisis and collapse than any other party, will be given vast new powers under the proposed plan, all in an ostensible effort to regulate markets and prevent a repeat of the housing bubble. Some of these powers include being able to conduct on-site examinations of financial institutions attempting to borrow money from the Fed, expanding access to Federal Reserve loans, supervision of state-chartered banks, and oversight of payment systems.

The Fed would become the "market stability regulator" of the American economy, as if a free market system required regulation to give it stability. In fact, it is the presence of the Fed and other regulatory agencies that are the primary tools used to create bubble, pump capital into inflated markets, and then dump their positions at the top of the market, then proposing even more regulatory power and taking profits on the downside of the bubble.

All of this means that the largest centers of financial power in the country (and the world, by extension) will be able to profit directly by their expanded control of government regulatory agencies. It bears repeating that the Federal Reserve is not a part of the federal government, being instead a consortium of private banks which have been given monopoly authority to create the nation's money and determine the cost of capital.

The Fed's new powers under the Paulson Plan will allow the Fed, working with the President's Working Group, to determine the cost of capital to every business and person acting in the economy and control all of the country's payment systems. Already on one side of every financial transaction in the nation due to its control of the money supply, the Fed is now trying to insert itself directly into the middle of the economy by total control of capital costs.

The net effect of this will be that the cost to borrow money will be set at the whims of the people in power for reasons other than creating free market conditions (think political manipulation during election years, and financial corruption profiteering the rest of the time). Small businesses and individual borrowers will find it difficult to compete with the largest corporations who can be given below-market rate loans, while the costs of the system are transferred to the American people through taxation or inflation of the money supply.

Homeowners who have been affected by the foreclosure crisis have been calling on the government for help in holding the private financial institutions accountable for their predatory lending decisions. In return, the people have been offered a plan that gives a private financial institution, the Federal Reserve, near absolute control over the economy, and some politicians have stated that even this plan does not go far enough.

The meltdown of the housing market is a perfect illustration of the government and corporations working together to create market bubbles, profit from them, and then crash markets. Scapegoats are found while the government is offered more power, which it then uses to extend protection and more profit-making opportunities to the largest corporations, all at the expense of the people who suffer most from the economic crisis.

Although there have been numerous proposals put forward by Congress in order to fix the housing crisis, most of them have so far proven ineffective or are blatant bailouts to corporations. The politicians have been churning out one propaganda piece after another under the label of "foreclosure help," the corporate welfare "Foreclosure Prevention Act" being only the most recent.

These programs, though, have been designed more to distract attention away from the real bailout going on. Debates about how many tax breaks to give to corporations to induce them to keep foreclosing on houses allows legislators to avoid looking at the bailout going on right in front their eyes, with the Federal Reserve funding the banking industry with taxpayer money.

This under-the-radar bailout is especially disturbing, as it is little more than a criminal leveraged buyout of the wealth of Americans, paid for by the people themselves. The US Treasury prints government bonds in order to borrow money from the Fed, which then trades these bonds to the banking system in return for bad mortgage debt.

In effect, the banks are literally using their bad loans to buy up America's government securities, transferring ownership of the government from the people to the Fed then to the largest banks (who, coincidentally, also own the Federal Reserve System). This has already been done with hundreds of billions of dollars, and the mortgage crisis is just beginning.

This whole scheme of bailing out lenders might have had a more positive effect if the government gave out loans to banks in order to bail them out but return the interest to the government and the people. But the government borrows money itself, from a private corporation with a monopoly; this makes the government a slave of the monetary system.

But with this unseen bailing out of the banks, politicians are able to focus on how they have been debating how to help homeowners, while distracting attention from the money Americans are paying to help mortgage companies. Semantical games to trick the people do not qualify as productive activity for legislators to spend all their time engaging in, but this is what they have been reduced to in an empire of debt that has gotten out of control.

Homeowners and the rest of the general public will be forced to pay for this bailout, possibly to the tune of nearly a trillion dollars -- there is a lot of toxic mortgage debt floating around already. The resetting mortgages have only begun with a second wave of them coming in the summer of 2009, along with worldwide food shortages and rising oil prices already affecting prices at the grocery store and the gas pump.

It is unfortunate that too few Americans understand that the current financial crisis is a direct result of government intervention in the housing market. An era of loose credit, inflation, and bubble creation at the Federal Reserve drove investment into real estate markets that would not have sustained such growth without the manipulation.

But now, there seems to be a wholesale reliance on government to help out homeowners in foreclosure while keeping predatory lenders accountable. It should be no surprise that Congress has done the exact opposite, putting together foreclosure help programs that are little more than public relations stunts while allowing the banks to be bailed out repeatedly.

Then again, it is not the members of the Senate or the House that will have to pay for these bailouts, and there will be little admission that representatives elected by the people are beholden to corporations. As usual, it will be all of us who fund the bailing out of the multinationals, with lower real estate values, currency debasement, higher gas and food prices, and economic collapse.

Hopefully, many of the people reading this blog are not waiting for foreclosure help from politicians. The destructive voluntary programs put forward by Congress, coupled with the active bailing out of the financial system, should dissuade most homeowners from believing that the government will be able to intervene and solve the foreclosure crisis. Unfortunately but not surprisingly, the government has done everything in its power to allow the banking system to keep taking advantage of homeowners and the people of the country.

The politicians, though, do not have much choice in the matter anymore, as they are just as enslaved to the debt machine as the public. With government debt and deficits in the trillions of dollars, there is simply not enough money to keep the system going without creating massive inflation. The government has made the mistake of borrowing money at interest, money which it could create on its own debt-free.

In fact, the nation is effectively bankrupt, being forced to borrow several billion dollars every day from other countries, mostly Asian. The banks have also begun to go bankrupt, but have been able to rely on the Federal Reserve to give them the appearance of solvency. Neither the banks nor the government, however, will long be able to keep paying their bills with dollars that are increasingly losing their value.

Trading in bad mortgage debt at the Fed for US Treasury securities will only keep banks in business a short time longer than if they were forced to keep the nonperforming loans on their books. In time, investors would have lost all confidence in the banks and would have taken their money out, either in the form of cashing in stock ownership or removing money from bank accounts. With the effective bankruptcy of the government, though, banks who have traded their mortgages for Treasury securities will only put off the crisis of confidence, not avoid it entirely.

By 2009, experts have reported, the ability of the US government to meet its own debt obligations will be thrown into question. With a deep recession in 2008, and several new programs put into place by the government to help alleviate the situation, the borrowing will go up even faster, more money will be created, and the government may become insolvent much sooner. Borrowing money and printing more dollars out of thin air can not last forever, and eventually foreign governments will realize their dollar holdings are worthless.

Politicians proposing giving more power to the Fed or offering tax incentives to prop up the banking system are not helping homeowners stop foreclosure. They are helping banks stave off bankruptcy so that the government itself can stave off bankruptcy for as long as possible. But their efforts to do this are actually increasing the danger in the future, as foreign countries are finding it more difficult to deal with the US defaulting on its dollar debts by devaluing the currency. Once other countries dump their dollars, the politicians will have run out of options.

The long-term value of all currencies backed by nothing is zero, and the US dollar has already lost 20% of its value in the past year, relative to other currencies (which are also backed by nothing). Going off the gold standard and allowing banks to create as much money out of thin air as they wish is bringing on a currency crisis and economic depression that could make the Great Depression look like the heights of the dotcom boom.

In the coming crisis, though, the government only has the debt standard to abandon, but maybe that is really the only long-term solution. A rolling back of government intervention in monetary affairs and a return to real money may start at the local level, but it may allow these neighborhoods to recover from the government's and Federal Reserve's institutionalized manipulations in the economy.

Most of the debate about the government "doing something" to help homeowners in foreclosure has focused on what it should do. What kind of program should be passed, what the role of the FHA should be, how the Fed can manipulate interest rates lower, and so on. But none of these arguments gets to the heart of the matter, which is what authority the federal government is acting under to help people save their homes.

In fact, the question should be, does the federal government even have any authority to help homeowners stop foreclosure? The answer is absolutely not. Where would the government get the authority to becoming involved in foreclosure proceedings and mortgage contracts? There is simply nothing in the US Constitution, the supposed supreme law of the land, that allows the federal government to be meddling in such affairs. Not surprisingly, the programs offered so far have done a terrible job helping homeowners.

But just because the federal government has no authority to get in the middle of voluntary mortgage contracts, that does not mean the individual states and local governments can not get involved in creating various creative help programs. As long as the states have such authority in their own constitutions, they can create legislation to offer relief to homeowners. How well their own programs will function is obviously debatable, and more community-based solutions would more likely be able to address local situations better than centrally-planned state efforts.

Because of the extra costs and lost efficiency of state and federal government involvement in the foreclosure crisis, it should up to local governments to get involved in the housing mess, if any level is involved at all. Of course, with the stunningly low quality of public schooling, both housing and education failures are related. This is reflected in the fact that so few Americans have any basic financial education, and do not understand how to balance a checkbook or make sure they can afford their mortgage in 3 years, not just in 3 months. Thus, more private and voluntary efforts may prove to be more effective than government intervention to alleviate foreclosures.

But, if one is to follow conventional wisdom, the people of the country granted only limited powers to the federal government through the US Constitution. Other powers they granted to their states through state constitutions. And any powers not given to the states or feds are retained by the people. Of course, any rights that an individual does not have can not be transferred to an authoritarian government, which will inevitably infringe on the rights of private individuals.

That means that homeowners and concerned community members should not wait for the federal government to "do something" about the foreclosure crisis. In the first place, they do not have any authority to do anything anyway, and in the second, homeowners and their neighbors have much more power to affect the foreclosure crisis than the feds have. Foreclosures will be most effectively dealt with at local levels, since all real estate is local, in the end.

Homeowners can stand up for their 10th Amendment rights and declare that the federal government has only a few powers, and all other rights are with them and their state and private institutions. Only by reclaiming some of the powers of the individual can communities can together their own plans to deal with issues such as schooling and housing crises. This will produce much longer-term solutions than waiting months or years for the federal government to reward banks and corporations and then call it helping the people.

Just this week, it has come out in the mainstream press that the former head of the Department of Housing and Urban Development (HUD), Alphonso Jackson, had been giving preferential treatment to political insiders and political party sympathizers. What has been surprising about this is that it is being promoted as a victory of government over one corrupted official, and not representing the entire system of generally uncorrupted public appointees. But HUD, just like almost every other government agency, has engaged in contract bias for decades.

The fact that corruption was found in the Department of Housing and Urban Development in the midst of a housing and foreclosure crisis should not really be surprising to the vast majority of Americans. HUD has been run as an essentially corrupt organization for decades, giving out contracts to develop low-income housing, then assisting in the cleansing of these neighborhoods through drug raids. Handing out contracts to pump up an artificially-inflated housing market did not just start with the Bush administration.

It would be wise to remember that the origins of this current run-up in housing prices began after the 1997 Asian Crisis during the Clinton years. Alan Greenspan, former head of the Federal Reserve system, with the blessing of Congress and the president, began lowering rates and easing credit. Banks involved in the crisis were bailed out, and the largest hedge fund to go bankrupt in that era, Long-Term Capital Management, was bailed out by the private banks that own the Fed.

The Government-Sponsored Enterprises, such as Fannie Mae and Freddie Mac, also saw increases in investment pouring in. The banks were encouraged to make mortgages, even to people who could not afford to pay, and investors were encouraged to invest in mortgage-backed securities. The benefit was that these mortgages owned by the GSE's were backed by the government, which would take the fall if defaults occurred, thus guaranteeing a level of profits for the banks and investors. The seeds of the subprime crisis were nurtured here in the GSE's.

But the Department of Housing and Urban Development has always given out preferential contracts, just like every other government agency. Almost everyone who does not live in a cave (and even some who do) have surely heard of companies like Halliburton, KBR, Dyncorp, and other corporations that benefit from government welfar. These companies did not get no-bid cost-plus contracts to "rebuild" Iraq or provide other services because they proved they were the best company for the job -- they got them because of who they know currently in power in Washington.

So the preferential treatment afforded to some companies and political insiders has always existed; the trick is to keep it as quiet as possible. Thus, the egregious mistake that the outgoing head of HUD made was that he stated the obvious out loud. He said that he had removed a bid that had already been awarded to a company because a representative stated he did not like the president. His stating this out loud to a group in Dallas, Texas, was a political mistake of the highest magnitude, as it admitted gross corruption and political favoritism.

To be successful in political bribery and manipulation, a secretary of a department really has to be like another Alan Greenspan. The former head of the Fed was notorious for always talking in riddles and arguing about the definitions of words, rather than explaining things or answering questions. Apparently, semantics and shallow arguments with confusing banking and financial lingo, which many members of Congress are unable to decipher, is the key to remaining in power and looking like a genius while engineering a huge housing market bubble.

If Alphonso Jackson had been able to keep his cards a little closer to his chest, he would probably still be the secretary of HUD, handing out preferential contracts and talking about how to solve the foreclosure crisis in the housing market. But this act of rewarding politically connected corporations with preferential treatment and government contracts has been going on for centuries in America and across the world throughout history. Contracts to insiders has been an unfortunate constant of government.

More people every day seem to be confused about the foreclosure help programs being proposed by politicians in Washington. Any economic help provided to homeowners will not be able to keep up with the subsidies being provided right now to the banks without increasing the problem of inflation. But the propaganda has been effective thus far in tricking most of the public into believing that a solution is just around the corner and the people suffering from foreclosure will benefit. This line of thinking confuses families in foreclosure with the banks who took advantage of these people.

The government, through the Federal Reserve (or is it the Federal Reserve, with the blessing of the government), is helping the banking system by giving financial institutions below-market interest rates loans. Just last week, another $200 billion was made available to banks so that they can trade in bad mortgage debt in return for US Treasury securities. With increased reserves and fewer bad debts dragging down the banks' balance sheets, they can keep lending money out of thin air.

Making Treasury securities available in exchange for defaulted mortgage loans effectively means that the banks have absolutely no reason to work with homeowners to put together options to stop foreclosure. The lenders know they can just hide the foreclosing loans later on and get free money to bail them out from the government. So there is no reason for the banks to spend any of that free money on helping homeowners save their homes from foreclosure, and there is no reason to make any better decisions in lending policies.

There has been a lot of talk in the media and from politicians about helping the homeowners, but nothing substantial has been done in over half a year of discussions. The HOPE NOW and Project Lifeline programs involve only a handful of the largest lenders in the country, and the programs are voluntary for the banks to participate in. Also, they do not offer any solutions that banks could not offer in the first place, making them completely public relations schemes.

So, the banks have all the low and no interest rate loans they can handle, which came care of the Federal Reserve and US Treasury Department. Another related issue not being discussed is that easy credit and low interest rates created the housing bubble in the first place. More low rates and easy credit will only exacerbate the problem. Thus, the Fed is just doing whatever it can to create another bubble somewhere in the economy to bail the banks out of this current bubble's collapse.

Homeowners seeking help to stop foreclosure on their homes should not look to what the politicians in Washington are talking about. Far more enlightening (and disturbing) is to look at what they do. They talk about helping families in foreclosure (even proposing funds of $30 billion), while freely giving out hundreds of billions of dollars directly to the banks. Maybe $30 billion for 300 million Americans; over $200 billion and counting for a handful of the largest banks. Who benefits from this?

The foreclosure crisis raging across the country is beginning to have an effect on governments at the local and state levels. Declines in property values and more abandoned homes will lead to a decrease in the tax base that cities and counties depend on to say in business. Local governments in some areas are already facing insolvency due to high foreclosure rates and a dollar that is losing value by the week.

With decreased tax revenue, some of the wasteful increases in government over the past decade may have to come to an end. Local governments rode the upside of the housing bubble, increasing property taxes and issuing municipal bonds to fund new developments, like subsidies for strip malls and Wal-Marts. And as long as property values were increasing, homeowners and people moving into the area were more willing to pay a premium for living in highly-desired neighborhoods and watching their home equity increase every year.

The collapse of the real estate market has hit local governments even harder than it has hit the banks, who can rely on Federal Reserve bailouts to get them through the credit crunch. But now the local governments that made the most generous donations to big business at the expense of the people are experiencing a flight of homeowners out of communities. They either go rent, which does not help increase property tax revenue, or they move out of the expensive community entirely.

And now their houses are sitting abandoned, owned by the lenders who gave out loans for properties that were worth far less than how much was owed on them. Even a minor number of properties in this condition, vandalized and empty, can drag down the quality of a neighborhood, reducing home values. Squatters may move in, creating crack houses of once-desirable McMansions, and local crime rates may increase even as revenue to pay for police departments is falling.

There are many solutions that could be proposed on the local level to help homeowners in communities stop foreclosure to avoid creating ghost towns in suburbia. Cutting waste, reducing tax burdens on homeowners, eliminating subsidies to businesses, or instituting local currencies to facilitate more trade could all help keep the noose from closing around whole cities. But many local governments have only proposed increasing the size of government further, by instituting local and state commissions and hotlines offering foreclosure advice.

Eventually, in some communities the worst may happen and the local institutions of government may fail. Governments will not take in enough in property taxes to keep operating at such high levels, and simply pulling over more people to hand out speeding tickets will not make up for a great loss of income. When there is a danger that governments won't be able to pay their workers, there will be far fewer services and even the danger of some governments facing bankruptcy in paying back their own debts to banks and the government.

With what looks like a coming collapse of the banking system and the Federal Reserve taking steps to make the situation much worse, the Panic of 2008 seems to be just beginning. The price of gold and oil keep increasing as inflation and interest rate manipulation are creating a flight of capital out of the US dollar. And with high foreclosure rates, a slowing economy, and rising prices, the American way of life for many is turning increasingly depressing and desperate.

The run on Northern Rock bank in Great Britain, the short run on Countrywide, and now the collapse of Bear Stearns show how weak the banking system has really become. Of course, that is also a reflection of how much doubt there is about the mortgage crisis -- banks are not lending to each other because they are not able to gauge even their own exposure to the subprime mess.

Taking lessons from Enron in how to securitize and hide debt was apparently not a good idea for large banks, as they now have to deal with trillions of dollars of potentially bad debt. Even worse, no one can quite figure out who owns this bad debt, or how to get rid of it.

But the Federal Reserve has stepped in to take care of even that problem, by offering to trade bad mortgage debt for Treasury securities. This deal is only for the largest banks in the country, so average homeowners will not see any benefit from this self-defeating action by the central bank.

On the contrary, the average American should see a continuation of the decrease in his standard of living. The central bank of the country is inflating the currency and destroying the value of the dollar, which will make it difficult to afford even the most basic necessities, such as food and energy.

Thus, it should not be surprising that the prices of commodities are increasing in terms of devalued dollars. Oil and gold are just two of common measurements on the health of the currency. Producing nations will not want to continue trading oil, the most energy-dense fossil fuel, for worthless paper. And the price of gold has always been a reflection of the level of confidence in paper currency, which is why it has been suppressed for decades.

Now that the price of gold has been escaped the control of the world's central bank manipulators, though, the Federal Reserve is focusing on keeping up the appearance of economic health for as long as possible. A recession is probably the best they can hope for, as opposed to an inflationary depression.

But the Fed is walking the path of inflation by lowering rates weekly and injecting essentially free money into the banking system. For some reason, they do not seem to grasp the fact that it was artificially low interest rates that helped grow the housing bubble to such heights. Fixing the problem of inflation with more inflation is not even a short-term band-aid, let alone a long-term solution.

It should not surprise very many people that the bubble has now collapsed and the project of suburbanizing America has slowed down dramatically, even reversing in some areas. Building homes dozens of miles away from any reliable source of energy, food, water, or gainful occupations was never sustainable as an industry, but its tragic collapse has put many former homeowners who were unable to stop foreclosure out into the street.

But even with the slowing economy, loss of jobs, and high foreclosure rates, Americans are being stolen from to bail out the large banks that helped foster this environment. After all, it is America's place in the world to consume through debt the worthless products of the rest of the world, and without healthy banks to trap people into debt slavery, the entire system would have to find some sort of sustainable future not predicated on endless growth to finance interest payments to the banks.

Unfortunately, it is only a matter of time before the situation goes completely out of control. The Federal Reserve, in an effort to avoid the extreme lack of money during the Great Depression, seems to be going in the just-as-extreme direction of hyperinflation experienced in Germany in the early decades of the twentieth century. Except now, they are doing it on a global scale by devaluing the dollar, which will hurt America more than any other country.

As the foreclosure crisis has only grown worse by the month, and large banks are in danger of collapsing, the focus of government appears to be focused on helping homeowners save their homes from foreclosure. The government has stepped in with a number of different policies and programs that are designed to help people suffering from the foreclosure crisis. With most of what government does, though, the people who are designed to benefit are actually being hurt, while the parties who are most responsible for the financial crisis are socializing their losses.

The real estate bubble was inflated beyond all reasonable expectations of value at an increasing rate once the Federal Reserve lowered interest rates in an effort to avoid a recession after the crash of the dot-coms and the 9/11 terrorist attacks. Rates were lowered to below one percent, and people were encouraged to cash out home equity or buy a new home. Even people with poor credit were able to get mortgages for relatively low rates, and they took advantage.

Banks looked the other way during this boom, as many of the people setting lending guidelines were just as taken in by the low rates and rising values as everyone else. Hedge funds on Wall Street were only too willing to purchase bundles of these loans and were confident they would make money even on foreclosures. Home values were rising and people were buying as quickly as they could, which meant the inevitable foreclosed house could be sold for a profit.

But once the general awareness of the low quality of these loans spread throughout the economy, and property values stopped increasing, the entire house of cards began to fall. Unfortunately for those homeowners who made prudent decisions and did not take advantage of the run-up in prices, the large number who were facing foreclosure helped drag property values down even further. A likely response has been the calls from homeowners, concerned interest groups, and some politicians for a federal government bailout of homeowners.

The message of providing help directly to foreclosure victims has been much more widely spread through the media than any description of the actions being taken by the government to bail out the banks at the expense of homeowners. First of all, the Federal Reserve has been creating new money out of thin air to give to the banks. The central bank has been injecting tens of billions of dollars into the financial system and are even considering about $200 billion more in the near future.

However, direct injections of liquidity have so far failed to stimulate the economy. So now the Fed is left to its favorite tool of inflating the money supply and causing the dollar to fall in value. The price of goods like food and energy are going up dramatically, which hurts the people who need to eat and go to work in order to pay their mortgage. But it bails out the banks and helps them cover their poor lending practices. Of course, this is a reflection of the fact that the banks are infinitely more influential in Washington than the average person, especially an average person too busy trying to stop foreclosure to worry about what is going on in politics.

HOPE NOW and Project Lifeline are two voluntary programs the government has put together and presented as a saving grace for homeowners facing the loss of a home. Essentially, the programs are nothing more than media relations programs where a handful of major banks in the country are voluntarily offering homeowners various programs to save their homes. This might be through repayment plans or loan modifications, or freezing the interest rate for a set period of time. But these have always been offered to homeowners who can qualify for them -- putting a fancy new name on them does not change what the programs actually do.

Thus far, these have been the only responses from the government in regards to the foreclosure crisis. Although it would probably be better that they stay out of the situation entirely, the Federal Reserve continuing to inflate the money supply and manipulate interest rates will have unintended consequences for homeowners while benefiting the largest, most politically-connected banks. Monetary bailouts and voluntary programs for the banks. Inflation and currency collapse for homeowners.

Homeowners attempting to find some way to stop foreclosure would be better off trying to negotiate with their banks right now and trying to work something out, even if just for the short term. This will more than likely result in a much better chance to avoid losing the house, rather than waiting for a different government program to save them. For example, there are some proposed changes to bankruptcy laws that may allow courts to lower the total amount owed on the mortgage to reflect current market conditions, but nothing is set into law yet and certain members of Congress and the banking industry will probably be successful in blocking the changes, as they benefit people instead of corporations.

From changing the bankruptcy laws in 2005, to manipulating interest rates from 2001-2006, to injecting tens of billions of inflated dollars into failing banks, much of what government purports to be helping the average person instead only serves to take what little money they are allowed to keep after paying taxes. The temptations of the easy credit conditions fostered by the government that inflated the housing bubble does not absolve homeowners of their individual responsibility to educate themselves on how mortgages work and what may happen if the good times did not continue. But it is not surprising that some of them also took advantage of these conditions to profit in the short term, while setting themselves up for a financial collapse down the road.

As the housing bubble inflated beyond all reasonable estimates of property values, one of the largest beneficiaries was the local governments that depend on property tax revenues. Some areas saw tax increases of 300-500% while homeowners were moving into areas and paying more and more for properties.

But now with the housing bubble collapsing and many homes either being abandoned or the occupants simply refusing to pay anymore, these governments are seeing their own existence threatened. After all, how can government keep increasing when property values are falling and tax revenues are decreasing?

So, in an effort to fight this threat, many governments have resorted to instituting new programs to assist homeowners in danger of foreclosure. Such hotlines or bank-government partnerships are designed to keep promoting the theft of homeowners' money, now in a misguided effort to help them stop foreclosure. The real problem with these programs is that government at all levels often has a very, very difficult time rolling itself back, which is the only way to reduce the burden on homeowners.

Look at all the new foreclosure help programs being created by local and state governments right now. They are not going away any time soon, even if the foreclosure problem becomes less severe. And they will just continue to create a tax revenue drag on the average homeowner long after the current housing decline has ended.

Once government programs are created, they often stick around to become entrenched interest groups. And one such as a government foreclosure help hotline which "helps the children" and "keeps the American Dream alive" in the community will not be easy for any politician to do away with once its purpose has ended. Many people are not familiar with the term "mission creep," but government has made an art of continuing to grab power and redefine its original aims to serve new perpetuations of itself.

After creating these new initiatives, the programs need to be financed, with ever increasing budgets to pay for new equipment, new invasions of privacy, new employees, and cut-backs in actual services provided to homeowners in foreclosure. Many of them may end up with the ever-increasing prices and scaling back of hours and services that are endemic to government programs, such as the Post Office, for example.

Cutting property taxes without cutting government spending will not help the people who have been funding this huge increase in government through their participation in the real estate bubble. If government did spend less, then more homeowners could keep their property taxes and use them to pay their adjustable rate mortgages or spend on increasingly expensive food and energy. After all, government provides no productivity to the economy.

Ironically enough, though, government will keep spending on new unproductive programs to help homeowners save their houses from foreclosure, which will just hurt homeowners and cause more declines in property taxes. This may continue to the point of so many foreclosures in an area that the local government finds itself in financial danger, facing insolvency. Without property tax revenue, the governments will not be able to pay back their municipal bonds and fund the militarized police departments and other so-called government services.

But instead of cutting expenses and doing away with the wasteful programs that homeowners can no longer afford to fund, government will more likely use the blunt instrument of police power. If the police departments and judges may face the possibility of not getting their taxpayer-funded payroll checks through property tax theft, they may decide to turn to direct extraction of revenues at a much higher level.

This means a new reliance on increasing government revenues through other means than property taxes. Cops could pull over more people for coasting through stop lights or speeding, and issue more tickets with higher fees. Fines for smoking in public or a county income or sales tax on everyone living and creating productivity in the area may stabilize or increase revenue in the short term, but will just engender even more disillusionment with government.

To be effective for the long term and actually help homeowners facing foreclosure on their inflated homes, government needs to cut spending and return some or all of the money based on unrealistic property values to the homeowners and other taxpayers. This means cutting the additional waste that was added to government services during the housing boom of the last seven years.

Otherwise, all these temporary programs will just continue to hurt the people they have been set up to help and create more empty houses, crime will increase through actual violations of property values or through absurd government declarations of new crimes designed to produce new revenue, and governments, after giving the people a push into bankruptcy and foreclosure, will face their own solvency crises.

With all of the talk of new government programs to help homeowners in foreclosure, such as Hope Now and Project Lifeline, slightly more people in danger of losing their homes may have an extra option. At the very least, coverage of these programs may inform more owners that it would be best to contact their mortgage companies in order to attempt to work out a solution. But for those who have already lost their homes to foreclosure, in some cases months ago, there will be no consolation prize to be found in these programs to help them regain their previous properties.

Unfortunately, the people who have lost their homes, either due to poor lending guidelines, financial hardships, or otherwise, are simply out of luck with all of these government programs to help in the foreclosure crisis. However, they did contribute to the rise of these programs in at least one significant manner: it took all those people losing their homes to persuade Congress that foreclosures were becoming such a large issue that they needed to be addressed in some manner. Of course, it took legislators an additional six months to get around to doing anything and creating these plans, which helped push even more homeowners into foreclosure.

But it would not be a good idea for any homeowner currently or previously facing foreclosure to put too much faith in these government-sponsored plans. They involve only the largest banks in the country voluntarily helping out homeowners behind on their payments to create mortgage modifications or establish repayment plans to stop foreclosure. Not all mortgage companies are involved, which makes these programs much less effective, and the lenders that are participating can already voluntarily help put together payment plans or modify loan terms, hold off on a sheriff sale, or freeze the foreclosure process for a month or more.

Being a part of one government plan or another will not dramatically alter the ways that they do business, and only the press coverage of these programs will help inform homeowners of their existence. For instance, most mortgage companies have a foreclosure or loss mitigation department already; the problem is that homeowners are simply not aware of their existence and do not utilize the resources the bank offers. Many end up selling, refinancing, or giving up on their homes, rather than attempting to qualify for a solution through the loss mitigation department at the bank.

Thus, the government programs are not adding anything really new or devising creative solutions to any part of the foreclosure crisis, which makes the plans more a public relations stunt than anything. Homeowners who are unable to work with their banks now or do not qualify for a workout program will not find any additional help from the government programs than they could have found in their absence.

The best bet is that, if homeowners lost their property before the government programs were created, nothing in the programs will help them get their houses back after they have been foreclosed. Of course, there are numerous ways to regain a house after foreclosure, but they have nothing to do with the current plans put forth. In fact, homeowners who have already gone through foreclosure without the benefits of these government-sponsored solutions most likely would have lost the home even with the programs. They are voluntary for the lenders and not all lenders are involved in the programs and lenders can already do everything in the programs without government intervention.

The government and the banks have come up with a new propaganda program designed to provide artificial hope to the declining real estate markets. Purported to help homeowners in foreclosure work with their mortgage companies, Project Lifeline, as it has been named, is another poor effort by the bureaucrats and their paymasters to solve problems they created with the same tools that created the problems in the first place.

One of the drawbacks of the plan is that the proposed foreclosure freeze is only temporary, lasting a mere thirty days. Most homeowners and people who work in the foreclosure industry know that it can take a mortgage company thirty days just to acknowledge it has received a fax, let alone that they will begin working on a solution.

But, in order to qualify for the program at all, homeowners need to be at least 90 days late on the mortgage, by which time the lender may have begun repeatedly calling, seeking to collect on the loan. Destroying their credit rating and allowing 90 days worth of interest and late fees to accrue, just for the chance to qualify for a mortgage loan modification of some sort is very little to look forward to, for most homeowners.

The program itself is being offered through a joint effort by six of the largest lenders in the country, Bank of America, JPMorgan Chase, Citigroup, Countrywide, Washington Mutual, and Wells Fargo. This leaves out nearly 50% of the rest of the population that holds a mortgage, and the Project Lifeline program is voluntary even to the companies that have chosen to participate.

While all of this may seem quite benign, and even somewhat positive, the banks and government have allowed themselves an excuse to explain the eventual failure of the program. The banks have stated that they will be proactively calling homeowners to offer the modification or forbearance programs, and government officials have stated that it is up to the homeowners to meet the banks halfway and work together on a solution to stop foreclosure.

This is probably the most ironic statement made regarding Project Lifeline, and the effectiveness of banks proactively calling homeowners after they are behind by 90 days to offer them solutions to foreclosure is simply absurd. The question is, will the lenders be calling their defaulted clients to offer Project Lifeline before or after the collections department scares off any potential participants with dozens of threatening phone calls every day?

If the lenders simply keep on making the same threatening phone calls for the first 90 days, like they do now with all of their clients behind on the mortgage, then all of the Project Lifeline propaganda is just a ploy and will be used as an excuse later on to steal the homes from the foreclosure victims and reap monetary benefits while doing so. Ninety days of voicemails and threats from the collections department often has the effect on homeowners of no longer responding to any call from the lender, and deleting voicemails without even listening to them.

One call from the loss mitigation department will surely be lost in all of the collection calls, and then homeowners will lose another chance to save the home, and the banks and government will be able to blame the foreclosure victims for this. "We called the homeowners -- they never responded. We are the good guys who wanted to help and these people refused to take a step and call us back to request our assistance."

More than likely, after this failure of Project Lifeline, the blame will be put squarely on the homeowners themselves, rather than the ironic and self-defeating actions of the mortgage company. But this failure will also be used as another excuse to give the banks a bailout courtesy of the inflation machine at the Federal Reserve.

The banks will be perceived as the real victims, when it was their own policies and business practices that helped create the real estate bubble, profit mightily from bad loans, eat up vast swaths of the country as Real Estate Owned properties, and then earn their unjust reward in the form of billions of dollars of free money. Homeowners, the only victims to suffer actual losses of their homes, will be propagandized as greedy and lazy, denying the wonderful help the government offered.

Now that the banks and local governments are finding themselves in serious danger due to the housing crisis, they have been working together even more visibly than they always do. Mortgage companies experiencing defaults in record numbers are having a difficult time remaining solvent and have required injections of inflated capital from the central bank; politicians elected to cut spending and waste from government will not be able to finance their own overspending and waste if property tax revenue declines. Both government and banks, therefore, have an extremely vested interest in keeping as many people in their homes as possible.

This explains the recent trend of government partnering with selected banks to teach homeowners about financial management and the foreclosure process. Numerous city or state governments have sponsored websites or local seminars featuring local mortgage brokers and representatives of large banks to educate homeowners on what they can do to stay out of foreclosure. But it is deeply ironic that government, after ignoring its "duty" to protect "citizens" from being taken advantage of by fraudulent loans or their own ignorance, are now taking up the cause when their own livelihood is threatened. It is impossible for government to provide the third-party, independent assistance that foreclosure victims require.

To begin with, the State (or city or county) is not there to protect anyone right now. For example, try suing the police department if they “fail” in their “duty” to “protect” your life, liberty and property, such as if your car is stolen or you are mugged. The lawsuit will be promptly thrown out of court because there is no "cause of action" against the government, because the bureaucrats have no duty to protect anyone or anything. So these same politicians are not going to suddenly, magically, start “protecting” homeowners from bad loans unless it serves the bureaucrats’ self-interest of keeping property taxes high enough to fleece homeowners enough to maintain their corruption.

Judges, although they may be able to help homeowners in some instances, are often just as corrupt and paid-for as any other bureaucrat. Most of the judges work with the same attorneys day in and day out to pursue foreclosure hearings, becoming friends and acquaintances with the lender's attorneys. The lender, though its lawyers, pays all of the filing fees and court costs related to the foreclosure out of its pocket, which keeps these judges in business. The judges, then, have little other option than to keep the lenders happy by rubber-stamping the foreclosure judgments one after another, despite gross rule violations or outright criminality.

The banks are no different and benefit the same way. The managers of the local offices of these subprime loan sharks are sitting on election boards and donating to state and local campaigns to keep their preferred candidates in as much power as possible. The state and local governments are able to appoint judges to the trial courts which hear the foreclosure complaints and are more open to the arguments of the lenders, instead of "protecting" the life, liberty, and property of the average taxpaying homeowner.

Even at the federal level, the large banks and investment institutions are some of the top donors to many presidential campaigns, because they know that their preferred candidate will pursue legislation that will allow banks to keep making poor loans and receiving bailouts to avoid facing the consequences. And the banks in the past half-year have received hundreds of billions of dollars from central banks around the world in misguided efforts to steal money from productive people to hand to bankers who made poor lending and investing decisions. Of course, homeowners who make poor financial decisions are simply left out to dry.

Interest rates are also controlled at the federal level by the Federal Reserve System, which is owned primarily by the largest banks which are now suffering the most and need the Fed to bail them out repeatedly. The Fed lowered rates as far as possible for years to assist banks in seducing more buyers to get into adjustable rate mortgages that they could not afford. Then, when rates rose and defaults occurred in record numbers, the banks made out by taking over large sections of the country’s real estate, and getting tens of billions of dollars of free bailout money care of the private printing press that they own.

This is not to say that there should not be an option of using a third party independent of both government and banks to provide some help to stop foreclosure, if homeowners want it. But it would be a mistake to trust the mortgage companies or the government to provide any “independence” to the people. Lenders, unfortunately, must participate in the process of working out solutions with owners because they are one party to the contract. Involving a bought-and-paid-for government bureaucrat, who owes his job to the foreclosing banks, though, is only a sure-fire way to guarantee that foreclosure victims end up either homeless or in bad solutions that will serve as only temporary band-aids as politicians pressure them into stop-gap measures to keep property taxes high for another few months.

With continuing record foreclosure rates, more people, pundits, and politicians are calling for more direct involvement by the government in the market. Freezing rates, punishing banks, and offering rates as low as 0% to borrowers have been proposed. But holding the banks themselves accountable through government intervention will not serve the overall purpose of convincing banks to begin making prudent lending decisions again. In fact, it was government intervention in lowering interest rates and offering cheap credit that significantly contributed to the real estate bubble to begin with.

Rate freezes and low interest rates

The problem with creating rate freezes or giving extremely low interest rate loans to those with poor credit is that many of the largest banks that would be making these loans are owned by shareholders who are attempting to capitalize on the highest returns and lowest risk that banks can offer. Many of these investors include pension funds, mutual funds, insurance companies, individual investors, and other institutional investors.

If the government got involved and started regulating interest rates and lending programs directly, many of these large investors would take their money out of the financial institutions, looking for better returns in other markets. How happy would any person be if their 401(k) was returning 0% for18 months with a low interest loan with a freeze? Probably not very pleased at all. What if it was returning a negative rate, because collecting 0% interest does not pay for the direct costs banks have when making loans, and profits would have to be taken out of the principal amounts coming in? This would be even worse, because no one wants a negative investment return.

Fewer Foreclosures? Doubtful

Furthermore, these programs would not even prevent foreclosures from occurring. Homeowners fall behind on their loans for a variety of reasons, including job loss, medical illness or disability, and financial mismanagement. Freezing mortgage rates at a low level would not prevent weaknesses in other industries and contributing to job losses if firms close or are shipped overseas. The responsibility having a plan to provide for an emergency and finding solutions to stop foreclosure rest squarely with the homeowners and the banks. If they can not come together to work out plans, the government will have a tough time bridging the gap.

In cases of medical disability or sudden accidents, the high cost of insurance and medical care are directly caused by government intervention in the medical industry. Direct government intervention in the lending industry would cause much the same problems, with banks having to add more up front fees or requiring higher down payments in order to make up losses from artificially low rates that do not eliminate or adequately transfer the risk.

No Financial Education -- Who's in Charge of Schools?

On the other hand, advertising to kids just entering college to pick up a credit card is not a good practice for banks to be engaging in. This just traps them in the credit nightmare at the earliest age possible, and entry-level jobs for high school graduates who are pursuing a college education are not reputed to be the most stable. In addition, many college kids can not afford halfway decent food every day, let alone pay 29% interest rates on a credit card that they use to purchase their $200 school textbooks. Maybe banks should offer students jobs or internships, or colleges could offer more work programs, instead of offering credit cards to the kids the second they leave their parents' house. Arguably, this would be a much more effective manner or creating "brand loyalty."

But is is the government-run public schools that are directly responsible for the lack of financial education being given to the vast majority of kids. Through their first eighteen years of school, students do not learn even the very basics of financial management, from how to balance a checkbook, to the importance of saving up an emergency fund, to the real costs of credit cards, to how to read a simple contract, and so on. If they did have any kind of basic financial education, then, presumably, they would not be such easy targets of lenders.

Government is not Here to Protect You from Yourself

The more government gets involved in any activity of a person's life, the more uninformed people will allow themselves to become, because "government is here to protect us" if they make a mistake. They can simply demand "change" and their representatives will offer them more free bailouts to appease the public and regain election. But government is not there to protect anyone from mistakes caused by their own willingness to remain uneducated, and government is especially bad at protecting people from themselves.

If homeowners enter into a voluntary contract that they say they understand, and sign dozens of papers admitting that they understand what they are reading, but in actuality have no idea what is going on, then it is up to them to speak up and have it explained to them, either by a mortgage broker, real estate agent, or title company representative. If none of them are able to explain the contracts, then it is best to hire an attorney who can explain in plain English what a mortgage means.

Are Banks Learning?

But banks are starting to wise up now, although their reaction has been to deny credit across the board, rather than make more prudent lending decisions. Such success, if it can be called so, is a small step in the right direction (three steps in the wrong direction, one step in the right). So many defaults have wiped out their reserves and now credit card delinquencies are increasing. Citigroup is effectively bankrupt, Countrywide is being eaten up, and over 200 mortgage lenders have stopped making subprime loans or have gone out of business. They learn when they lose money, even if the Fed bails them out with billions of dollars of inflated money (see, there goes government intervention again helping banks avoid the effects of their poor decisions).

In recent days, there has been some speculation that the government may step in to provide assistance to homeowners facing foreclosure. A moratorium on foreclosures for a number of months and a freeze of interest rates are two commonly-proposed solutions. It is worth considering if the Congress is able to step in and renegotiate these voluntary mortgage contracts, though, and what the implications would be if such actions were taken. Many laws are designed to protect the rights of two parties who enter into a contract, while others are designed to protect both parties from certain unlawful actions of the other in regards to that contract. An across-the-board rate freeze or moratorium, therefore, could not protect unlawful actions without meddling in perfectly valid contracts as well.

As a side note, no where in the Constitution is any authority of that nature granted to Congress or any of the other branches of government. However, the Constitution has been one casualty in a century-long battle between special interests and the document as it was originally intended. Its relevance to most discussions of law these days is more to point out its unfortunate irrelevance, a trend which hopefully will not last.

Some of these subprime mortgage loans were obviously made in error -- on the part of banks to make bad loans they knew the applicants could never afford and then sell them to investors on Wall Street before dealing with the consequences; and error on the part of homeowners who overstated income to get bigger homes and failed to plan for any but the most optimistic of futures. This does not make the mortgage contracts illegal necessarily, but shows how corrupt and greed can affect banks and home buyers equally. And not all banks engaged in fraudulent inducement of debt, while not all homeowners stated incomes twice as high as what they actually made. But these practices were prevalent in the days of easy credit and low interest rates.

These other loans that are performing well due to prudent decisions on the part of lenders and home buyers, with low rates and no ARM increases, should be allowed to work out as the contracts dictate. Many of them will be paid off, refinanced down the road, and some of them will even be foreclosed. Homeowners are always vulnerable to a financial hardship, such as the sudden loss of a job, experiencing a medical crisis, or a death in the family. These loans should be worked out according to the current terms of the mortgage, whether subprime or not, if the owners can not afford the properties or otherwise sell the property, qualify for a foreclosure refinance, or find another solution. The homeowners and banks should also be completely free to renegotiate the loan on their own, without rate freezes, moratoriums, or other government involvement.

The only branch of the government that might eventually have anything to do with these contracts is the judicial branch, and only if homeowners sue the banks under some existing law and the case is litigated in federal court, appeals court, or the Supreme Court and a decision is made. This may be in regards to individual homeowners suing a lender based on the circumstances of a particular mortgage contract, or a class action lawsuit brought against a bank for widespread illegality.

But beyond this limited involvement, Congress should not simply pass laws now that overturn contracts that were entirely valid and legal at the time they were entered into. This throws any and every existing and potential contract into question, and will ensure that banks begin to add a premium to new mortgages. If a law passed a couple of years after a mortgage is secured can be changed at the whims of the legislative branch of the federal or state government, thereby decreasing profits for the lender, they will attempt to make sure they can take as much profit as possible in the early years of the contract, through a higher interest rate or charging more points up front.

Obviously, this will just make foreclosure that much more likely, as the loan applicants will be paying more towards interest in the early years of the mortgage, delaying their buildup of equity. For younger home buyers attempting to establish a mortgage history and whose income may not be entirely stable due to their recent entry into the job force, higher costs early in the term of the mortgage can put a squeeze on their budget. For elderly homeowners downsizing to a smaller home, a more expensive mortgage will increase the difficulty of living on a fixed income and keeping up with inflation.

No home buyer would benefit from the possibility of their mortgage suddenly being renegotiated by the state and the lender being temporarily barred from foreclosing or raising the interest rate as dictated by the contract. The ability to put the foreclosure process on hold or modify the terms of the contract should remain with the parties to the contract. Problems can be more easily solved when the bank and the homeowners have different but mutually beneficial goals: the bank does not want the house but wants its interest and principal payments, whereas the homeowner wants the house and is willing to begin making on-time payments again. Government interference in such mutually-beneficial negotiations could not help solve the problem.

Thankfully, many of these proposed solutions in Congress may not come to pass, and may reflect a race to the bottom for presidential candidates to offer unrealistic solutions that sound good and pander to certain segments of the country that do not understand the implications of these policies. Banks and homeowners, working together to fix the foreclosure problem, would find more beneficial solutions than government declaring valid contracts to be invalid. Although the banks themselves are not humanitarian institutions and saw homeowners more as potential targets for profit rather than providing a useful service that allows buyers to purchase houses, they have begun to realize the consequences of "working on" loan applicants, rather than "working for" them.

One tendency of homeowners in foreclosure is to hope for a solution to their problems to come from the government, whether in the form of a free bailout, social housing, or some unidentified method that they can use to fight the foreclosure. While the state foreclosure laws are designed to protect the property rights of foreclosure victims, there are very few official resources in place to educate homeowners on basic financial concepts. Local authorities, furthermore, are merely given orders to carry out by the court system and offer virtually no opportunities for homeowners to explore options to stop foreclosure.

There are not really any social housing or government assistance programs for foreclosure victims, especially at the federal level. There may, however, be resources at local levels, especially if a group of concerned citizens organize together to keep their wealth in their neighborhood, rather than watching the value of their property decline as large banks become owners of vast portions of the city or county. For the most part, though, homeowners are pretty much left to their own devices from start to finish during the foreclosure process. This is probably one reason why many of them end up losing their homes, even when they have other options. They simply do not come across an explanation of how foreclosure can be stopped and what methods may be available to them.

The local authorities, such as the county court system, sheriffs department, or city officials, certainly have no responsibility to find alternate housing for the evicted families or otherwise help them, especially if the community has not put any safety nets in place. The county sheriff conducts the foreclosure auction and also carries out the eviction at the orders of the court, once the homeowners have lost the home and have been ordered out. That is the extent of the local authorities' participation in the process. The law may provide the homeowners with time and options, but foreclosure will proceed to its inevitable end if no option to avoid foreclosure is found and implemented.

Most of the foreclosure victims who move out after losing their homes to foreclosure, though, simply go and rent an apartment or a new house. There is really not much else they can do, as the likelihood of them qualifying right after foreclosure for another loan to purchase a house is almost nonexistent. Others, of course, go and live with other family or friends until they have gotten their finances back on track. The period after the foreclosure has ended is often one of either an intense feeling of unfairness and bitterness toward the foreclosing bank, or a time of reflection to figure out what went wrong in the former homeowners' financial plans to cause them to lose their homes.

An unfortunate few will end up with no other options and will be facing some tough times being homeless for a period. Hopefully, this number will never be very large, but it is one of the sadder realities of anyone facing foreclosure. The very real possibility of this happening should be enough to convince other homeowners that they need to have a financial plan that allows for the eventual emergency. Without an emergency fund that will last them 3-6 months until the hardship has ended, prosperity can very quickly be transformed into desperation. When homeowners have self-insured their incomes for a few months, though, there is less of a need for desperate measures to be considered, as their savings will carry them through the worst of the crisis.

But homeowners in America, in general, are pretty much left on their own before, during, and after foreclosure. There is very little financial education given to the average consumer who lives on credit cards and finances their way through life, vainly attempting to keep up with their neighbors, who are just as poor and over leveraged as they are. This lack of education is one of the main reasons for the fact that so many homeowners do not know how to prevent going into foreclosure, and can not find a solution once they are in danger of losing their homes. But, financial education is easy to come by online, so every homeowner can research various ways to save a home. Gaining knowledge about how foreclosure works and what is often done to stop foreclosure can allow homeowners to use effectively the time and protections they are given under the state foreclosure laws.

Can fascism really happen in America? Even worse, has the country already begun a shift towards fascism, not unlike Nazi Germany or Chile under Augusto Pinochet ? If so, how can we know that these dangers have arrived, and what can we do to combat hem? These are the questions that Naomi Wolf proposes to answer in her new book, The End of America: Letter of Warning to a Young Patriot. This short book presents a more disturbing look at recent events in America's history and predictions for a possible future in which the democracy of America is slowly eroded away and replaced with a rising totalitarianism.

Wolf explains that her motivation for writing this letter was the fact that she could no longer ignore the anti-democratic trends occurring in numerous segments of a formerly free America. Noticing these trends caused her to research the methods that dictators have used in the past to close down a society, and search for similarities between various regimes. As she states in the introduction, "I had to reread the stories of the making and the unmaking of freedom. The more I read these histories, the more disturbed I became." The product of her research is presented a set of ten steps that all dictators take when attempting to shut an open society, and the bulk of the book is spent discussing these steps and how they have been taken in the past and how they are being taken now in America.

A short look through the sources that Wolf uses throughout the book indicates the depth of research conducted. Much of the history of America is told through the ideals of the Founding Fathers and their battle for a free and open society, and the checks and balances they included in the Constitution to make a fascist shift in America as difficult as possible. The main sources used to analyze past dictators include studies of Germany under the Nazis and Pinoche's Chile in the 1970's, although other sources are frequently cited, as well. And one only has to look around at books and newspaper articles being published in America on a weekly basis for examples of the profound fear that this country has moved decisively in a direction that has as its conclusion a society completely closed down to the ideas of democracy.

The one most glaring difference between past dictatorial regimes and America is the fact that, according to Wolf, we will not experience a dramatic event to herald the closing of democracy. "There will not be a coup in America like Mussolini's March on Rome or a dramatic massacre like Hitler's Night of the Long Knives," that will shock the society into submission and declare martial law. This means that the shift to fascism would necessarily take much longer, as it is enacted out in a series of progressive steps and, presumably, could be slowed, stopped, or reversed. But, Wolf points out the ten steps that all dictators take when imposing their control over a democratic society, and she sees each step being taken now in America. The steps are the following, taken directly from the book:

Invoke an External and Internal Threat
Establish Secret Prisons
Develop a Paramilitary Force
Surveil Ordinary Citizens
Infiltrate Citizens' Groups
Arbitrarily Detain and Release Citizens
Target Key Individuals
Restrict the Press
Cast Criticism as "Espionage" and Dissent as "Treason"
Subvert the Rule of Law

As noted above, the vast majority of the book deals with the similarities between the current state of America in relation to these steps and various dictatorial regimes in the past. Many of the comparisons Wolf draws are timely and disturbing, especially as some of the very same tactics used by dictators in the past were described with the very same terms as are now being used ("war footing," the use of embedded journalists in the Iraq War). Also disturbing is the brazen way that the current Bush administration is taking these steps in the open. Although the government has been involved in surveilling citizens (wiretapping during Watergate ), infiltrating citizen's groups (the FBI's COINTELPRO ), and developing a paramilitary force outside the control of Congress (the CIA), these were often secretive acts that were not meant to have light shed on them and were claimed to be stopped after being discovered.

Now, however, the government has either admitted openly to these acts, or simply lied about them in the face of evidence to the contrary; no efforts are made to discover the truth or protect citizens' rights. In fact, more of then ten steps are taken in response to the uncovering of other steps being taken, including suing and imprisoning journalists, labeling dissent as anti-American, and invoking the threat of terrorist strikes against the nation. This is the difference that Wolf is concerned with in regards to the open shift in America towards the complete subversion of the rule of law. Formerly secret activities that citizens would have voiced strident objections to are now committed in the open, with no regard to public opinion.

Another disturbing similarity Wolf point to is the progressive desensitization that occurs when a shift to fascism happens over time, instead of through sudden violence. The secret prisons and use of torture may originally be used only on suspected terrorists or "enemy combatants," who are plotting attacks against the nation. However, as the public gets over its aversion to torture, the definition of who is an "enemy combatant" or similarly hurting the nation becomes broader. In short order, those who expose government lies and corruption in the press are decided to be undermining the government and need to be imprisoned and tortured. Then, ordinary citizens who speak out against government policies may become subject to arbitrary detention or prolonged imprisonment.

This step can be seen even recently being acted out in the case of Andrew Meyer, a University of Florida student who was tasered at a forum featuring Senator John Kerry. After a period of shock at the police use of force, and numerous other taser incidents being reported, the public, through media analysis which portrays cops as well within their rights to use such force against citizens displaying no overt danger, has been fed a message which it will recall the next time such brutality is used by government against the people.

It is in the last chapter, "The Patriot's Task," that Wolf provides some final messages of hope that the country's moves towards the closing down of democracy can be reversed. Solutions are also presented, including the need to "hold house parties, set up town halls, convene our neighbors, pass out users' guides to the Constitution, overwhelm our representatives and the Presidential candidates with demands for them to restore the rule of law," as well as "stand up directly to confront those who have committed crimes against the Constitution -- and hold them accountable." As the crimes against the Constitution have been numerous, and accountability has been lacking, it is uncertain how practical these suggestions may be, but neighbors and communities can come together over their disillusionment with the current state of American politics.

In this way, community solutions can be established, including ways to take power back from the government, such as establishing local currencies, making investments in local businesses instead of large corporations that receive huge government contracts and tax breaks, and sustainable methods of keeping small localities open and democratic. Even as citizens work towards reopening the government (a goal whose achievement is doubtful), they can disengage from these same establishments until they are reopened or recreated, and engage in the more productive work of creating sustainable solutions.

There are numerous parties and institutions and corporations that the current foreclosure crisis can be blamed on. Appraisers inflated home values. Realtors sold homes that were overvalued and convinced others to buy homes that were overvalued. Lenders made loans without any documentation and wished homeowners would be able to afford these loans until they were profitable enough to foreclose. Homeowners lied on their applications to get as big a house as they possibly could with as low an interest rate as possible, and waited until the very last minute to look for a solution to stop foreclosure. But do homeowners now deserve a bailout, courtesy of the government?

Well, that depends on what is meant by the term "bailout." If it means a free cash handout to pay the mortgage, then no, homeowners do not deserve that. A solution of this nature would not help anyway, as free handouts would only delay the inevitable, and would actually cause more homeowners to face foreclosure.

In addition, there are ways that homeowners can work with their banks or find alternate solutions to save their homes from foreclosure. Loan modifications, repayment plans, bankruptcy to avoid foreclosure, foreclosure refinancing, hard money loans, selling the property, short sales, and deed in lieu of foreclosure are just some of these possibilities. A simple search of foreclosure advice on any major search engine will yield even more options for homeowners. It is unlikely that any homeowner has exhausted every option to stop foreclosure, so giving out more possibilities through other government agencies will not help, either. If foreclosure victims are not making use of what is already available to help them save their homes, making more available will not fix that. It will just give homeowners more possibilities not to examine.

What homeowners really need is just education to know what options are available to them. A free handout is not going to fix the problem of no homeowner ever being prepared for foreclosure and not knowing what to do when they begin missing mortgage payments. Bailouts or free handouts just cause them to look for another handout the next time they are in a financial bind. This also prevents them from learning any lasting lesson from foreclosure, such as purchasing a home that is affordable, and planning for short-term financial hardships by setting up an emergency fund.

Also, it is not all that fair to take money away from other homeowners and taxpayers and give it to homeowners in foreclosure. A tax hike would actually increase foreclosures, as homeowners living on the edge now would go right into foreclosure, and ones close to edge would now be on the edge of losing their homes. Areas that are the hardest hit by foreclosures may see a slight improvement, but regions that are experiencing relatively low foreclosure rates would see a wealth transfer out of their communities, causing a greater danger of foreclosure. Certain areas would improve slightly, while foreclosures would increase in other areas.

This is why homeowners should do as much research as possible to save their homes on their own, or utilize resources already available. There is no lack of options to help homeowners stop foreclosure, and many companies and local investors and specialists provide foreclosure victims with valuable services to help them save their homes. While a government bailout may provide some homeowners with a temporary solution, the best way to avoid foreclosure now and prevent it from every happening again is to provide homeowners and citizens in general with basic financial education and the resources necessary to take care of themselves in all but the most dire financial hardships.

Besides the central government, a number of state governments have begun to become involved in proposing bailouts and creating legislation designed to protect homeowners from taking out bad loans that inevitably lead to foreclosure. These handouts are designed to help homeowners find other resources to stop foreclosure, and require banks to exercise more caution in their lending policies. However, it will be the banks who benefit most from the new laws, while increasing the cost of a mortgage for home buyers and those attempting to refinance their current homes.

The bailouts being proposed, while paying lip service to assisting homeowners find solutions to foreclosure, are not really for homeowners. Obviously, the bailout will go straight to banks and private corporations and be used to bail them out their current financial difficulties. Homeowners themselves will be extremely lucky to see any benefit directly from the government. The new regulations and subsidies will be directed at the government agencies that intervene in the real estate market and the banking industry as a whole. Nothing of any substance will change for homeowners.

New rules that are being proposed are, interestingly enough, designed to provide homeowners with more and clearer disclosures. No amount of paperwork will convince a home buyer to sit down and actually read through the paperwork, though, and this is one of the main causes of the current foreclosure problem. Banks made all of the necessary disclosures, most of which need to be in writing and signed off on by the loan applicants, but homeowners simply did not understand the type of loan they were getting. They signed their names next to statement that they did understand, but they never really did understand how an adjustable rate mortgage worked.

Banks make the most money on a property if it goes into foreclosure after about 7 years. All of these foreclosures are happening way before 7 years (sometimes before 7 months! ), usually around 1-3 years, and they are not profitable. Banks are stuck with useless loans and property that is not worth very much money, so they need a bailout that "helps homeowners" keep their properties for a few more years. The bailouts will only take money out of the pockets of other people, either through taxes or inflationary measures, and be given to agencies and the banks in order to provide assistance to a very small number of foreclosure victims. Some will definitely be able to stop foreclosure and save their homes, but even more of the general population will lose their purchasing power through higher taxes or the printing of money. The bailouts could cause even more foreclosures, as government intervention often causes a further slowdown in an already slowing economy.

Handing a homeowner a wad of cash or directing them to a government agency that has a new avoid foreclosure program is not going to solve the problem of overspending, overconsumption, and not saving. The next financial hardship that comes along will cause the homeowners to fall right back into foreclosure, but hopefully the market will have stabilized by then and the bank can sell the property at a profit after taking it back. That is exactly what the bailout will be designed for: providing homeowners a bridge from "unprofitable foreclosure victims" to "profitable foreclosure victims." This is one reason why it is so important for homeowners to take responsibility for themselves, do their best to utilize the bailout if they receive it, or find an alternate solution to foreclosure if they are not one of the lucky ones. In fact, it may finally be time for foreclosure victims to begin reading the paperwork they signed when they got the loan and obtain relevant foreclosure advice to understand how the process works and what can be done to prevent from losing their homes.

Free government handouts only increase the likelihood of more bad loans by banks and homeowners. Why make good financial decisions when you can just rely on government to make everything alright again and tuck you in at night? So, yes, the government knows exactly what this bailout will accomplish for the vast majority of homeowners, and once it fails to provide the promised results, they will only recommend more government intervention, even higher taxes (federal and state/local) and more bailouts (created through printing money out of thin air and giving it to special interests and new and existing government agencies). If anyone thinks that the current foreclosure crisis is bad, just wait until the government gets more directly involved.

Recently, there has been more offhand and semi-official talk of a foreclosure bailout by the federal government. Some homeowners facing foreclosure may see this as a lifesaver, but it is destined to be anything but a saving grace for foreclosure victims. No, this is going to be a bad idea and probably as badly administrated as FEMA trying to take care of Hurricane Katrina victims. In all likelihood, the federal government will end up giving out the proposed $1 billion bailout fund to homeowners who were never in foreclosure, or provide alternate living arrangements that no foreclosure victim will ever live enjoy the benefit of, and the entire exercise will be an enormous waste of money.

First of all, a word on where the government would get its proposed bailout fund. Governments do not have anything, they do not have any money or any ability to produce anything with any value. So, when the government proposes a new fund such as this, the money has to come from either taxing citizens or printing money out of thin air. In terms of taxing citizens, the money for the bailout fund would come partially from homeowners in foreclosure who could use their own money right now to pay their mortgage. More money will come from other homeowners and citizens who will be forced to fund the bailouts of millions of homeowners that they have no responsibility for. Higher taxes may help a few homeowners save their homes now, but will cause an even further financial crunch for others, causing even more foreclosures. This is how the government creates problems and solves them with more problems, and how it leverages political decisions on the future, postponing the true cost of these foreclosures.

They government should not take or print another $1 billion of money to provide a service that is better offered at a local and state level. Instead of raising taxes for the additional money, or creating inflation by printing $1 billion, let communities figure out solutions. It is in the community's interest to have real people own homes, rather than large parts of these cities owned by multinational banks that will never have anyone living there and will drag property values down. That decreases the wealth at local levels by having fewer people as homeowners, paying taxes and patronizing local businesses. The inflation caused by printing the money causes even more wealth to be taken from individuals and communities, as it is usually the same multinational banks that have first use of the new money -- not the foreclosure victims that need help.

The federal government has no place and no credentials in protecting homeowners from foreclosure. It was the Federal Reserve that lowered the interest rate to near zero percent and then raised it over fifteen times that caused the problem in the first place, among other factors. But the interest rate manipulation led directly to the ease with which homeowners could refinance at low rates until their adjustable rate mortgage reset to a dangerous payment. So trusting any activity of the government to solve a problem they created will only result in the same or similar problem that will need to be solved, only on a much larger scale.

The foreclosure bailout fund is an idiotic proposal pandering to potential voters who believe that the federal government should take care of us from cradle to grave. Its goal is to take wealth from those who own homes and those who do not own homes, from foreclosure victims and homeowners who have never missed a payment, and redistribute it to those homeowners the government decides are worthy enough to save their homes. It does not address any of the underlying causes of these foreclosures, such as jobs being shipped overseas, an onerous income tax system, or inflation caused by an unsustainable foreign policy or domestic entitlement programs. Unless these are dealt with, the government will continue to create money out of nothing and cause homeowners' real wealth to fall year after year to inflation.

It would also not be surprising at all if the $1 billion bailout fund went straight to the hedge funds and mortgage companies to prop up their corrupt lending practices, rather than to real homeowners. The government has a habit of giving free gifts to such industries as the financial institutions, military companies, drug companies, and insurance companies. Taking a billion dollars away from individuals and redistributing it to Wall Street in a propagandized attempt at "helping homeowners" is a quite conceivable outcome.

Not to mention the fact that the proposal is so vague as to be ridiculous -- how would homeowners apply for some of the aid, and how much would they qualify for? In case the federal government is not aware, a homeowner paying an extra few hundred dollars is not going to help if they are behind by even one dollar more than their extra payment. Lenders simply do not take partial payments, and a free fund to have the government pay a homeowner's mortgage will only encourage more homeowners to fall behind, knowing they can take money from other people to pay their mortgage. Safety nets such as these often encourage jumping, although the net may be less safe than anyone realizes until they have landed.

Such a useless measure will not help homeowners in foreclosure. Only they can help themselves or find a community solution, as we have stated numerous times on this blog and in various articles published online. More government programs will only result in more incompetence at the federal level and a reliance on government babysitting, both of which have done nothing but harm the individual for years now in various forms.

A good overview of the entire mortgage crisis now being experienced by homeowners in record numbers is contained in the article below. From what it looks like, there will not be any new options available for foreclosure victims, besides a potential bailout from the government. And with hundreds of millions of people already taking some kind of subsidy from the government, this will just place an even greater strain on the value of the dollar and the economy. This is have especially worrying consequences if the suggested federal bailout only props up the housing market for a short period of time. It would be far wiser for homeowners to find some way to stop foreclosure on their own, rather than hope for a free check that may never materialize, and will only provide temporary solutions.

EDIT: Article no longer exists on site.
Mortgage Crisis Threat to System Dawning on Congressmen?

As the meltdown in the subprime mortgage industry continues, with more lenders shutting their doors every week -- 55 at last count today -- there are numerous implausible solutions being thrown around by Congress, regulatory groups, and other civil rights organizations and consumer advocates. Although a break from foreclosure may help some homeowners, the impact to the rest of the economy would result in even more foreclosures after the proposed moratorium has expired.

RISMEDIA reports that "several of the nation's leading civil rights organizations, organizations asking for a ban on foreclosures for the next six months," in order to give homeowners a better chance to save their homes and overcome their current financial hardships. As unrealistic as this proposal is, however, it may come into reality if the present foreclosure crisis extends into next year's election season. However, any break in the flow of money from borrowers to lenders will put a heavy strain on the economy. Banks make their money through the collection of interest on a loan, and this is the pool of money that they use to pay their employees, expand their lending, and keep the lights on. A six-month "time-out" period would cause banks whose primary business is mortgages to experience drastic decreases in revenue, and may cause even more to go out of business. Layoffs and general economic depression would ensue without a major bailout, and even more formerly employed homeowners would end up facing foreclosure.

A temporary ban on foreclosures is obviously not the best route to take for the banks or the homeowners. This would only prolong the inevitable, and give foreclosure victims a false sense of security. Although a hardship may only be temporary, the missed mortgage payments will have to be made up sometime. It is illogical for the rest of the economy to suffer while homeowners who are falling behind on their mortgages are given extra time to save money with no regular monthly payment during the ban. Instead, the mortgages themselves should be regulated and homeowners given a lower interest rate, or more time to catch up on their missed payments, if they are able to make the regular monthly payment. This way, the homeowners, if they are financially stable again, will be able to stop foreclosure. The homeowners whose positions have drastically changed and can simply no longer afford their homes can sell or consider a deed in lieu of foreclosure at any time.

Banks, unfortunately, are almost categorically difficult to negotiate with and seem to have little compassion for their clients who are in hardships. We receive complaints about lenders every day from foreclosure victims who are just unable to get straight answers from their banks, or are treated rudely with very little respect. This does nothing to a homeowner's confidence in being able to find a solution to foreclosure, and causes many of them to give up and fall victim to any foreclosure scam that will offer them a quick and easy option to save their homes.

Homeowners need reasonable options to stop foreclosure -- not handouts and not tighter banking regulations. Handouts will not solve the problem and let the economy work out the problems occurring in it right now. And tighter lending regulations will only cause homeowners to find that they are unqualified for foreclosure loans that they would have qualified for just a few months earlier. Unfortunately, there are no easy solutions to solve the problems associated with mass foreclosures, but quick, reactionary solutions designed to act as Band-Aids will only force more homeowners into foreclosure. Squeezing the flow of money will only result in more foreclosure victims being squeezed out of their homes.

Yesterday, the United States Senate held hearings on lending practices that have contributed to record numbers of homeowners facing foreclosure. Typically, the Senate is late to the game, responding to the worsening crisis over a year and a half after the peak in home prices in mid-2005. Since then, homeowners have been experiencing a decrease in their homes values, along with a corresponding increase in their mortgage payments, as adjustable rate mortgages reset to ever higher interest rates. AP Business Writer Marcy Gordon covered the discussions in the Senate.

Senator Chris Dodd, a Democratic presidential hopeful, also chairman of the Banking Committee, brought up the issue of consumer protection and urged the subprime mortgage industry to cut out its "predatory, abusive and irresponsible lending practices." Also testifying at the hearing was the Rev. Jesse Jackson, founder and president of the RainbowPUSH Coalition, who stated that legislation by Congress is needed to "'protect the vulnerable' against abusive home-loan practices."

Short on actual solutions, though, the hearings did not produce any real ideas for reform of the lending industry. "Dodd said he planned to call on federal agencies that oversee home lending, such as the Federal Reserve, to discuss whether they should impose restrictions on mortgage industry practices." It may not be widely known, but it is true that the Federal Reserve is not a federal agency -- it is a private bank that is charged with administering the nation's monetary policy, interest rates, and money supply.

In fact, it could be argued that the Fed, by loosening the nation's monetary policy in the early 2000's, increasing the money supply, decreasing interest rates to historic lows, and thereby encouraging banks to lend more money, appraisers to inflate home values, and give nearly every consumer the impression that they could purchase their dream home. In the hangover, which we are all now experiencing, it is because of the Fed raising interest rates that home values have dropped and payments on ARM loans has increased.

Regardless of the Fed's monetary policy, though, one point should be emphasized over all others: do we want the mortgage companies being overseen by a private bank that is owned by other banks? This would effectively allow mortgage companies and banks and lender to police themselves, which would result in even less regulation than is imposed now. At the present time, licensing laws for mortgage companies are imposed at the state level. If the Federal Reserve Bank was in charge of mortgage lenders, the state's authority would shift to the Fed.

Thankfully, in one show of sanity, the president of the National Association of Mortgage Brokers, Harry Dinham, stated the obvious fact that consumer education is much more important than less regulation packaged as greater protection for consumers. "As the decision-maker, the role of the consumer is to acquire the financial acumen necessary and take advantage of the competitive marketplace, shop, compare, ask questions and expect answers," stated Dinham. Whether it is purchasing a new home, refinancing the current mortgage, or facing foreclosure, homeowners are better served by education than by laws designed to protect them. In many cases, by the time wrongdoing in the lending industry is discovered, the original mortgage broker is long out of business, and there is no accountability.

While it is prudent for the Senate to be examining the current state of the nation's real estate industry and market, there must be more promising solutions offered than handing over regulation of mortgage companies from the individual states to the country's private central bank. Homeowners right now are in need of help to stop foreclosure, and redesigning the lending policies of banks, a process which could take months, if not years, will not alleviate any of the pain in the real estate market right now. It is most likely that the current hearings in the Senate will come to nothing, if the housing market recovers, but if regulatory oversight of mortgage companies is given to the Fed, states and communities will lose another of their rights to police the actions of businesses that work with the consumers in their area.

Various federal agencies have programs to help you stop foreclosure.

The following government agencies deal directly or indirectly with various aspects of the real estate industry. Many of them provide some sort of free foreclosure help for homeowners who find themselves in a hardship situation, unable to pay their mortgage. Knowing the background of these entities will give you more information to stop foreclosure; in fact, some of these agencies directly oversee your mortgage lender.

U.S. Department of Housing and Urban Development (HUD)

HUD was established in 1965 as a cabinet of the United States Government whose principal objective is to develop and execute policy on housing and cities. Major programs overseen by HUD include Community Planning and Development, Housing, Public and Indian Housing, Fair Housing and Equal Opportunity, Policy Development and Research, Government National Mortgage Association, and Healthy Homes and Lead Hazard Control. HUD also provides homeowners in foreclosure with information relating to saving their homes, as well as referrals to housing counseling agencies. Several workout programs are administered or offered directly by HUD, such as partial claim and Pre-Foreclosure Sale programs.

Federal Housing Administration (FHA)

The Federal Housing Administration was created in 1934, with the purpose of insuring qualified private home mortgages for certain types of properties. It is a government corporation overseen by the U.S. Department of Housing and Urban Development (HUD). The FHA provides programs that help clients qualify for mortgages with low down payments, easy credit qualifications, eligibility with less than perfect credit, loans at reasonable rates, and money for repairs. Other services include assisting homeowners who have FHA-insured loans with options to stop foreclosure.

U.S. Department of Veterans Affairs (VA)

The VA, established in 1930 and also called the Veterans Administration, is the federal government’s second largest department, and contains three main subdivisions. These divisions are the Veterans Health Administration, Veterans Benefits Administration, and National Cemeteries Administration. The Veterans Benefits Administration Home Loan Guaranty program is charged with assisting veterans in housing situations, including foreclosure situations. The VA website provides current requirements for obtaining funds from the VA to purchase a home.

Federal Trade Commission (FTC)

The Federal Trade Commission was established in 1914 as an independent agency of the United States Government. The principal mission of the FTC is to promote consumer protection and eliminate and prevent anticompetitive business practices. The Bureau of Consumer Protection performs functions of investigating businesses, enforcing actions, and provides consumer and business education. The bureau is principally concerned with issues related to advertising and marketing, financial products and practices, telemarketing fraud, privacy and identity protection, and enforcement of previous FTC orders. Complaints against businesses can be filed online at the official site of the FTC.

Office of the Comptroller of the Currency (OCC)

The office of the Comptroller of the Currency is a Washington, DC based regulatory agency which charters, regulates, and supervises all of the national banks. It is a bureau of the US Department of the Treasury and the OCC’s Customer Assistance Group helps customers with complaints. Current versions of consumer complaint forms are kept on their website.

All of these agencies have websites which you can find through searching for them on Google, Yahoo, or any other search engine. If you feel you have been a victim of any kind of mortgage fraud that has caused you to fall further into foreclosure, then you should contact these regulators immediately. Even if you are not a victim of fraud or a scam, many of them provide free foreclosure help. Direct contact information to these agencies and others can be found in our foreclosure foreclosure e-book, Theft of the American Home.