Thursday, December 10, 2009

Payment Holiday: How To Make the Banks Fix the Mess They Created

Banks are happy to take their profits when the economy is going well, but they don't seem to want to take their lumps when it isn't. The only real solution I see to the home value crisis is the banks rewriting the mortgages to some version of fair market value. But they won't do it. No incentive.

How about this crazy idea: what if all you mortgage payers out there take just one month off from your loan payments all at the same time? And hey, do it on your credit cards too. They're killing you with the raised rates anyway.

If everyone took a one month payment holiday at the same time, I suspect it would bring the financial system to its knees pretty quickly. How's that for incentive?

I'm thinking January 2010 just when the bills come in for the Christmas shopping.


jawrat said...

not enough. three months might do the trick. the problem with one month is that the banks would just run in the red and jack the rates and apply penalties...they'd be able to go to the govt, plead poverty and the govt would bail em out yet again...frankly, they should have been cut loose last year and not bailed out. companies that don't do well go bankrupt and go out of bidness...thems the breaks, y'know? but no, govt stepped in and cashed em up and let em ride long enough for them to get their losses moved off to the taxpayers, while they made off like bandits with the profits...

Anonymous said...

The banks are holding the cash intended for loan modifications for a reason. The banks are denying loan modifications under manny different guises.

The reason? They are making a mint on the interest margin for the cost of money with the Fed Funds at 0%-.025%.

Here's a simple scenario among many ways to earn profit on the Fed Margin by denying loan modifiecations...

Say JP Morgan Chase gets $25 Billion from the Fed, then distributes only 10% of the funds, which is mainly accurate. the $22.5 Billion remaining is earning interest somewhere. Even a checking account will pay .75% interest and CD's 2%, so JPM can earn 2% interest annually on $22.5 Billion in cash reserves annually.

Deny enough loan modifications over 2 to 3 years and JPM can repay the Fed their loans with required penalties using the interest earned on the Fed's own money given to JPM intended for loan modifications.

Once the Fed is repaid JPM Chase can underwite their loans under there terms without the Fed forcing them into high risk loan modifications.

Limited exposure to JPM Chase by issuing only a fraction of the loan modifications approved by the Fed and pocketing the difference in margin as profits.

Not to mention JPM Chase's ability to pay their vendors with the $22.5 Billion in cash flow to accomodate for collecting late fees.

The cash flow allows JPM Chase to pay their vendors and remain solvent, giving it time to collect late fees and unscrupulous charges from credit card holders.

The Fed bailout did stop the collapse of the banking industry at the cost of the taxpayer and benefit of the banks.

The doors are open but no one's home in the credit market unless you have dollar for dollar cash collateral.

When sheep get slaughtered they don't ask questions, they're hearded into a single file pen and exterminated.

The american taxpayer is in cue and if you haven't been stung yet, the hammer will fall on you when you least expect it.

Peace... out.