Monday, September 17, 2007

This is happening today, not in 1929.

The second major "bank run" of the year is in progress even as I write this, not in California this time, but in London - a supposed bedrock of staid solid pragmatism and economic conservatism.

Northern Rock tumbles as deposits disappear
Bank of England seen willing to extend funding to a buyer
By Steve Goldstein, MarketWatch Last Update: 12:02 PM ET Sep 17, 200

LONDON (MarketWatch) -- Shares of U.K. mortgage lender Northern Rock dropped as much as 41% on Monday, retreating further following reports that nervous customers, worried the bank would go under, have pulled out 2 billion pounds ($4 billion)...

People queued up for hours to withdraw all their money while they still could - and it remains to be seen how many will be left standing in line when they finally run out of cash-on-hand and have to close the doors on all the people still waiting.

Why?

UK props up wounded Northern Rock
By Steve Slater Fri Sep 14, 12:44 PM ET

LONDON (Reuters) - Britain's financial authorities stepped in to rescue mortgage lender Northern Rock (NRK.L) on Friday as the group, which has lent aggressively to home buyers, fell victim to the sharp rise in borrowing costs between banks...

...In Britain's biggest casualty of a global financial crisis sparked by U.S. mortgage defaults, customers queued on the streets as they waited to withdraw savings from Northern Rock branches, with some reports of fighting in its north-east England home town of Newcastle...


Because that sub-prime mortgage "problem" that the pundits said was "contained" and "would not pose a problem for the overall economy" is starting to drag down major banks with it. Countrywide may be the next nationally known victim - many smaller banks and mortgage companies have already bit the dust, 156 as of today, with a couple dozen on the "watch list." Several of these are not small little nobodies you've never heard of - on the list are entire divisions of Wells Fargo, for example, H&R Block, Deutchbank, and even a division of National City Bank (my bank, unfortunately) is on the watch list, I believe.

What this has to do with you, or me, or anyone with a mortgage, however, is this story, which you should read carefully:

How Someone Else's Bankruptcy Could Take your Home
9/14/2007 5:18:09 PM by Alan Hall

Complex systems fail in unpredictable ways: the more complex, the more unpredictable. If you are in such a system -- whether health care or the Space Shuttle -- you are hostage to its complexity. But what if you are just a homeowner, paying your mortgage on time, and the system fails and somehow sucks your payment into limbo and causes you to lose your home?

An article in today's Wall Street Journal describes that bizarre scenario unfolding now.

American Home Mortgage collapsed on August 6 and recently filed for bankruptcy. Freddie Mac and Ginnie Mae, the government-chartered housing finance agencies, have seized the $7 million in payments for principal and interest, property taxes and insurance that homeowners sent in prior to that date. This means insurance policies may lapse for non-payment triggering foreclosure...


The big government agencies and transnational banking conglomerates duking it out over these issues don't really care that you will lose your home even though you made all of your required payments - if the payments don't get where they eventually have to go, you will either have to cough up the money again or go into foreclosure.

That's nice, isn't it, class?

This was, unfortunately, the inevitable outcome of the millions of flaky adjustable rate loans, balloon mortgages, interest only payments, and questionable qualifications of those who took out these loans. There are fixed and well-known ratios of how much of your income a mortgage is supposed to require, and over that amount you should not qualify for the mortgage. The mortgage companies suspended these rules by running the ratio program based on the payment you would be making when you first got the loan - that is, the reduced rate or the lowest interest rate. They completely ignored the reality that the loan would not stay at those loan rates, and gave people loans knowing good-and-well that if they had run the ratios at the repayment level that the loan would be jacked up to in a few months or year, the applicants would never in a million years have qualified.

And that's how we got into this mess that could cause your life savings to disappear into thin air, or jerk your house right out from under you - people wanting to live above their means.

Remember that New Year's resolution I talked about last time? Here's what happens when everyone doesn't make it - people who never even took out a flaky loan and who made their payments in full and on time will lose everything because of it.

And if we had just heeded HaShem's rules on economics listed plainly in the written Torah - much less the Mesora - we wouldn't be here, class. Think about that.

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