DEBT

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Enigma
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DEBT

Post by Enigma » Tue Mar 20, 2007 1:07 am

Subprime Mortgage Lending & the Great Liquidity Crunch of 2007
Posted by Bill Bonner on Mar 19th, 2007

You can take the temper of an era by looking to see what its brightest minds take up. Pythagoras applied himself to geometry. Alexander Fleming discovered penicillin. Wernher von Braun built rockets to blow up London.

But if St. Augustine were alive today, he’d probably be touting the benefits of globalised markets. Isaac Newton would be running a hedge fund in London. And Henri Poincare would be working for Goldman Sachs, calculating the return on a tranche of BBB-rate subprime debt.

Scientists and philosophers alike have turned their focus to the greatest challenge and opportunity of our time: relieving other people of their money. We are voyeurs…gawkers at the merry and absurd world of money. And now comes the part that makes this sorry métier of ours worthwhile.

This week, traders at the big financial houses in the City and Wall Street were marking down their own paper. Merrill equity analysts, for example, cut their recommendations on Goldman, Lehman and Bear Stearns shares (as well as those of European banks Deutsche Bank and Credit Suisse Group) from ‘buy’ to ‘neutral’.

As for the bonds of the three biggest securities firms - they are judged by bond traders (many of whose paycheques come from these same big securities firms) at prices more suitable to junk bonds than to the masters of the universe. On Tuesday, Goldman astonished analysts with higher earnings than any had seen coming; still, investors sold off the stock.

The banana peel on which these august figures skidded was subprime mortgage lending. Looking closer, we see that the inside surface was slick with a special kind of mortgage, known institutionally as a ‘low documentation’ loan…and known colloquially as a ‘liar’s loan”

As to their ability to pay (and perhaps even as to their name and address) lenders took the borrowers at their word. With no solid incomes to boast about, nor any real assets to wave as collateral before the lenders’ turned up noses, the poor borrowers had to fib a little. Yes, they had been employed as a bank president for more than a dozen years. Yes, they owned an oil refinery in central London and were mentioned, briefly, in Howard Hughes’ will. No, they called no man a creditor…and yes, they were only borrowing money to buy a house because they didn’t want to take any of their own capital out of the high-performance hedge funds in which it was earning 50% per year.

Any simpleton could see that ‘liars’ loans’ would be a disaster for someone. But it took a near meltdown in the mortgage market to bring the point home to the geniuses in the financial industry.

The entertainment began on February 7, when HSBC announced that it had fired its head of North American operations, after its bad debt - much of it from subprime ‘piggyback’ loans - rose to USD $6.8 billion.

And then it continued, when New Century Financial, the second biggest subprime lender in America (carrying USD $23 billion in debt), came crashing down. The stock fell from USD $66 to near zero…giving up 43% in just three days in February, and most of the rest when the NYSE halted trading last week.

http://www.dailyreckoning.com.au/category/debt/

What happened to New Century shareholders??

http://chart.bigcharts.com/custom/newce ... t.gifquote
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It’s Official: The Crash of the U.S. Economy has begun

Post by Brian » Sun Jun 17, 2007 12:19 pm

Found this little gem,, :smt023
It’s Official: The Crash of the U.S. Economy has begun

by Richard C. Cook

Global Research, June 14, 2007

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It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”

Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”

Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”

Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serfdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.

What is likely to happen? I’d suggest four possible scenarios:

Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.
Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?
Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.
Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.
The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.

Richard C. Cook is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” A retired federal analyst, his career included work with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is now a Washington, D.C.-based writer and consultant. His book “We Hold These Truths: The Hope of Monetary Reform,” will be published later this year. His website is at www.richardccook.com.
"When somebody tells you nothing is impossible, ask him to dribble a football."

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Post by Enigma » Sat Jul 07, 2007 9:59 am

Beautifully written ... i could not agree more and although it sounds terribly pessimistic, even if it is only 50% right its a fairly scary future facing some of us.

Very sobering.
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Post by Enigma » Thu Jul 12, 2007 6:25 am

Here is another pearler! Lets watch the US$ continue to plummet.

This could cascade into the capital (stock) market as US stocks are less attractive to overseas investors due to the weak currency (USD) which would result in sell-offs (index plummet Dow, Nasdaq etc).

Just my 2cents worth.... read on.

http://www.bloomberg.com/apps/news?pid= ... refer=asia

Japan Should Diversify Reserves, Abe Adviser Ito Says (Update2)

By Shigeki Nozawa
Enlarge Image
Hiroki Tsuda, vice finance minister of Japan

July 11 (Bloomberg) -- Japan, the largest overseas holder of U.S. Treasuries, should invest $700 billion of its currency reserves in higher-yielding assets such as stocks and corporate bonds, said Takatoshi Ito, an adviser to the prime minister.

The reserves should be managed by a special fund that will gradually diversify into euros, Australian dollars and emerging- market currencies, Ito said in an interview in Tokyo.

Central banks in South Korea, China and Taiwan have announced plans to buy assets with higher returns than U.S. debt, contributing to a 7.4 percent drop in the dollar against the euro in the past year. The establishment of sovereign wealth funds, pioneered by Singapore in 1981, may also reduce demand for Treasuries, pushing up U.S. borrowing costs.

``Japan should make more use of its reserves, following Singapore's example,'' said Yuji Kameoka, senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``In order to manage these funds safely, a more appropriate amount is $300 billion.''

The dollar reached a record low of $1.3784 per euro yesterday, and was little changed at $1.3746 at 7:34 a.m. in London, on speculation loan defaults among home owners with poor credit histories will weigh on the U.S. economy. The yen traded at 121.21 per dollar, after reaching a one-month high of 120.99.

A Carry Trade

Ito said that the Ministry of Finance, which expanded its currency reserves by selling yen in 2003 and 2004, has essentially borrowed the funds from the Japanese people.

``Foreign currency reserves are assets that belong to our citizens,'' Ito said in an interview July 6. ``The government has borrowed the money from the people and it is engaged in a kind of carry trade. So it has to show some higher return on the investment.''

Ito, a member of Prime Minister Shinzo Abe's economic advisory panel, may need to overcome opposition from the finance ministry. Carry trades involve borrowing yen to invest in higher- yielding assets overseas.

``It's true that foreign-currency reserves in Japan represent a broadly defined carry trade position, because they are kept by borrowing,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America N.A. in Tokyo. ``I would not expect any significant change in foreign-currency reserve management.''

Selling Treasuries

Japan's $913.6 billion of reserve holdings are the world's second largest after those of China, which is setting up a fund to manage part of its more than $1.2 trillion of reserves. China's planned state investment fund has already agreed to take a stake in U.S. private-equity fund Blackstone Group LP.

The Government of Singapore Investment Corp. invests more than $100 billion of the city-state's reserves in stocks, bonds, real estate and commodities. Singapore held $144 billion in reserves at the end of June, up 12 percent from a year earlier.

Japanese investors sold $84.6 billion of Treasuries since August 2004, cutting their holdings to $614.8 billion, according to the Treasury Department. Taiwanese investors sold $6.2 billion in that period, reducing their holdings to $59.3 billion.

About $200 billion of the reserves should be invested in corporate debt or mortgage-backed securities, $200 billion in stocks and the rest in other assets, said Ito. Japan needs about $200 billion as its official reserves, held in highly-liquid assets such as Treasuries, to step into the market in case its currency plummets, Ito said.

``Japan should have certain levels of reserves so it can fend off unusual speculative moves,'' he said. The new fund would not be counted as foreign-exchange reserves in statistical data, but would be used for national emergencies, Ito said.

Global Trend

According to the International Monetary Fund, the U.S. dollar accounted for 64.2 percent of the world's foreign reserves at the end of March 2007, an eight-year low. The proportion of the euro rose to 26.1 percent, the highest since the currency was introduced in 1999.

On July 3, Financial Services Minister Yuji Yamamoto told reporters in Singapore that Japan should invest pension and foreign reserves in riskier assets such as stocks, the Nikkei newspaper reported. Finance Minister Koji Omi said on June 29 that reserves are not funds to be invested in a risky manner.

Economic and Fiscal Policy Minister Hiroko Ota, who heads the key economic panel, said on July 6, that ``nothing has been decided about what the panel will discuss.'' She said the panel's special task force will continue to debate public fund investment.

While Japan hasn't intervened in the foreign-exchange market since March 2004, its foreign reserves have been increasing due to growing interest income. Japan sold a record 20.4 trillion yen ($165 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004.

``I'm aware of the ongoing debate,'' Hiroki Tsuda, the top- ranked vice finance minister, said in an interview this week. The government is studying how other nations manage their reserves, though it has no immediate plans to make any changes to its own holdings, he said.

To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net
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Post by Enigma » Sat Jul 28, 2007 9:31 am

U.S. stocks will continue to fall next week, in continuation of a sell-off that saw the Dow Jones Industrial Average experience its worst week in over four years, due to nervousness that the easy-money binge of the last few years has come to an end. ...

http://www.schwab.wallst.com/alerts/rep ... NIz6RW1gku+
j9PC+KFEJWhP+3kTqOiWlnOakegr5fgMWJaVvqTxYg3i1EvfT2OeqLM=&a
Last edited by Enigma on Sun Jul 29, 2007 6:53 am, edited 1 time in total.
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Post by Enigma » Sun Jul 29, 2007 3:52 am

If you have any spare cash... get it ready!!

House prices plummet by up to €10,000 every month

Drop in value of properties on the market is being understated, say experts

Sign of the times: Estate agent's for sale sign in the garden of a house on the Rathfarnham road in Dublin
Tools

By Edel Kennedy
Thursday July 26 2007

THE value of average priced homes in some areas of the country [IRELAND] is plummeting by €10,000 each month.

Estate agents last night confirmed that - despite recent concessions for first time buyers - there has been an alarming drop in house and apartment prices across the country over the past three months.

Experts say the drop is being fuelled by the growing number of homeowners who are selling their properties because they can no longer afford to meet mortgage repayments.

They are being forced to drop the price of their homes in a desperate bid to sell as nervous buyers continue to sit on the fence.

Industry sources have said after years of double digit growth, it is now "not unusual" to see the price of a home drop by €10,000 - or more - each month.

Fears

And they are privately expressing fears that sales will not pick up in September, when the buying season traditionally begins again.

Many investors who enjoyed meteoric equity rises a number of years ago are now finding the rental income no longer covers the mortgage because of recent interest rate hikes.

Those who borrowed the maximum amount in the past year to buy a home are also feeling the effects.

"Apartment owners are being hardest hit, particularly those on the outskirts of Dublin, because there is such a supply of them," said one estate agent, who did not wish to be named.

"Areas such as Lucan, Swords and Tallaght were seeing three-bed semis being built up until about five years ago, but that's history now. The investor isn't buying there now, and an owner/occupier isn't buying because they want a house."

He said investors have pulled out of the market, with some selling up, but he dismissed concerns of panic amongst investors as many own several properties.

People have been hard-hit by eight successive interest rate increases, with those who bought in the past year most vulnerable.

Many First Time Buyers (FTBs) also drew down 100pc mortgages, with others opting for a 40-year repayment term.

Although the government and many estate agents are denying there is any hint of a 'crash', the signs are indicating that prices are dropping dramatically.

One owner of a four-bed in Rathfarnham, south Dublin, has placed a sign outside his house saying it is 'reduced to sell'.

Although estate agents will privately tell prospective buyers whether the owners want a quick sale, it is unusual to state same on a sign outside the property.

It is understood the semi-detached house had an initial asking price of €800,000 and went sale agreed at €820,000. However, the sale fell through and the owner is now seeking a quick sale and is asking for €750,000 or 'anything near that'.

Apartment owners, particularly in the M50 and Dublin commuter belt areas, are also being hit.

One owner was shocked to discover the value of his two-bed apartment in Dublin 15 had dropped by €30,000 in three months. "I had it valued and they said it was worth €381,000 which I was very happy with because I bought it three years ago and it had increased significantly in value," he said.

"But in the past few weeks I've noticed a lot more properties in the area are on the market so I got another estate agent from a different branch to value it. She said I wouldn't get anything over €350,000.

"I was shocked it could drop in value by so much in just three months."

Sources have said the Permanent TSB/ESRI House Price Index - largely regarded as the most accurate gauge of house prices - is no longer reflecting what is happening in the market.

"The Index is saying prices have fallen by about 2 or 3pc so far this year. That's totally understating what is going on," said one auctioneer.

"Nobody wants to buy on the way down, everyone wants to buy at the bottom. But no one knows how long it will be till we get there."

He added that there are "very few transactions" happening at the moment and he doesn't expect the market to pick up again until early next year.

The government has abolished stamp duty for all FTBs but it has not reignited the market as expected. Finance Minister Brian Cowen is expected to increase mortgage interest relief in December's budget to help offset the increasing interest rates.

The eight rate increases, from a low of 2pc, means that a home owner with a €300,000 mortgage over 30 years has seen repayments shoot up by €280 a month, from €1,215 to €1,495.

- Edel Kennedy

http://www.independent.ie/national-news ... 44153.html
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Post by Knightmare » Sun Jul 29, 2007 4:09 am

Dude...this thread is seriously stretched....lol
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Post by Enigma » Sun Jul 29, 2007 7:14 am

Knightmare wrote:Dude...this thread is seriously stretched....lol
Sorry chief.... should be fixed now :-)
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Post by Knightmare » Sun Jul 29, 2007 6:46 pm

Yup. Much better now....lol

Stop calling me chief....yer the co founder for cryin out loud....lmao
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Post by Enigma » Tue Aug 07, 2007 11:09 am

Okay Chief.... lol.
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Post by Knightmare » Wed Aug 08, 2007 3:36 am

* sigh *

I would call you a name....but that would be hijacking your thread.... :smt019
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Post by Enigma » Wed Aug 08, 2007 10:08 am

Knightmare wrote:* sigh *

I would call you a name....but that would be hijacking your thread.... :smt019
Don't make me MOD you dude!


but then again you would probably just un-mod my mod - DOH!

I guess we'll just have to compromise... is that okay Boss?

BTW i think i just hi-jacked my own thread.....
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Post by MzSnowleopard » Wed Aug 08, 2007 9:57 pm

yup- pocket those down payments and make sure your credit report will stand up to scrutiny.

For those in the US- if you're on section 8 rental assistance- check with your housing rep-
because IF you make 15,000 or more a year you may qualify for mortgage assistance.
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Post by Enigma » Thu Aug 09, 2007 9:23 am

MzSnowleopard wrote:yup- pocket those down payments and make sure your credit report will stand up to scrutiny.

For those in the US- if you're on section 8 rental assistance- check with your housing rep-
because IF you make 15,000 or more a year you may qualify for mortgage assistance.
what exactly is mortgage assistance?
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Post by Enigma » Sat May 23, 2009 9:33 am

Want to resurrect this thread over 2 years ago, we are now seeing some of the results of too much debt. The below quote from Jeffereson is now materialising in the the form of house repossessions and mass asset deflation that US, Europe and UK are continuing to experience. We now have millions of debt slaves and in the current position (negative equity) you can't really escape.


I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

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Post by Dark Angel » Sat May 23, 2009 12:01 pm

Enigma wrote:Want to resurrect this thread over 2 years ago, we are now seeing some of the results of too much debt. The below quote from Jeffereson is now materialising in the the form of house repossessions and mass asset deflation that US, Europe and UK are continuing to experience. We now have millions of debt slaves and in the current position (negative equity) you can't really escape.


I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

Well that was spot on...Thomas Jefferson makes the best argument for not having the FED
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MzSnowleopard
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Post by MzSnowleopard » Sat May 23, 2009 7:44 pm

Enigma wrote:
MzSnowleopard wrote:yup- pocket those down payments and make sure your credit report will stand up to scrutiny.

For those in the US- if you're on section 8 rental assistance- check with your housing rep-
because IF you make 15,000 or more a year you may qualify for mortgage assistance.
what exactly is mortgage assistance?
Mortgage Assistance is a part of the same program as rental assistance. It's for people on rental assist who want to buy a home. Basically, your case worker hands your file over to some one who specializes in helping low income people with purchasing a home. They help with finding financing and the paperwork. This is the FHA/HUD and there is a $ 5,000 federal grant given that can be applied to the down payment, closing costs, etc- as long as it goes towards the house.

Of course- Obama has upgraded the amount for 2009- to $8,000. I think that this is just for this year though.

Not all banks and mortgage companies will work with this program. Wells Fargo does not because they have their own programs. So, if this is something you're interested in- it should be among your first questions.

:)
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