On CNBC, Robert Weissman Proposes that "Under Water" Mortgages Stop Paying!

Stemming originally from loose lending standards that sent property values soaring from 2000-2007, a strategic default strategy for people with "under water" mortgages - the mortgage is for more than the fair market value of the home - is beginning to go mainstream.

Exacerbated by the $700 billion TARP bailout of the major banks which caused most of the problems in the first place, and now, executive bonuses to the same banks' top people, more and more Americans are seeking relief by just "walking away" or simply not paying their mortgages.

Here, in this video clip aired around 10:00 am EST on CNBC, Robert Weissman, President of the consumer advocacy group, Public Citizen, advocates that people who are "upside down" or "under water" should stop paying their mortgages. The comment comes at about the 4 minute mark in this discussion of executive bonuses, but despite the shock and awe - especially by Wall Street shill Mark Haines - Weissman doesn't retract or relent.

Pretty amazing.

As unbelievable as not paying your mortgage may sound, it gets even more interesting. Having researched this topic extensively, it appears that the banks which made all of the sub-prime, 20/80, interest-only, balloon payment, ARM, and prime loans - especially between 2003 and 2007 - were the same ones which, a. sliced and diced and "securitized" the notes, and, b. received TARP bailout funds.

While those two magnificent events are separate, they are conjoined. Because the banks went about the unthinkable business of separating the mortgage from the note (the common practice for hundreds of years had been for the bank to hold both the mortgage and the promissory note (promise to repay)), and then packaging these notes for sale to private investors, when the first big wave of defaults hit in 2007 and accelerated in 2008, the banks were caught with significant egg on their collective faces, as the SDOs (Securitzed Debt Obligations) began to default, eventually prompting the bailout, now better known as TARP, the $700 billion swindle which kept the banks solvent - for now.

However, because the mortgage and note on many mortgages (some sources say as many as 60 million of them) were separated, when homeowners stop paying, the normal route for the bank is to foreclose, except that the mortgage holder, or loan servicer, has no standing in a foreclosure, only the note-holder does. Those notes have been sold, traded, lost or are otherwise missing in action, the actual holder of the note unknown or is some obscure trust set up to sell interest in the note to investors in exchange for regular payments.

The financial and legal boondoggle this situation has created generally leaves homeowners with some good options: if the servicer brings a foreclosure action, they are in violation of federal and in most locales, state law, and, widely interpreted, also have no standing to foreclose. The mortgagor (homeowner) can then choose between filing a motion for dismissal on grounds that the servicing bank has no standing, or demand that the bank produce the note. In either instance, the foreclosure process is delayed and/or halted, sometimes permanently.

Recent decisions have ruled in favor of homeowners and against the banks. The media generally doesn't want this idea to gain traction, and the general public doesn't understand the issues, especially the key one that if the note and note-holder cannot be determined, or if the note-holder doesn't initiate foreclosure, the homeowner may be sitting on property, free and clear, even though title to the property will be clouded, at best.

It's difficult to believe that the banks who devised the entire scheme of mortgage fraud and securitzation didn't know exactly what they were doing. Once property values fall so dramatically that mortgagors stop paying en masse, the game is over. Bank income will fall so dramatically they'll be forced to close their doors. The government will have to step in again, though this time, not with money, but with guns and tanks to protect the banks' remaining assets (buildings and property), employees, and especially, executives.

The calamitous situation that would occur - clogging the judicial system (which is largely broken anyway) with far too many cases than it can handle - with homeowner, landowner, title and lien disputes rampant, no reliable banking system, and virtually no laws governing property ownership, conditions would deteriorate quickly. Municipalities, whose entire existence depends on property tax revenues, would be in line to fail, as would, naturally, the usurious issuers of credit cards, which debt is unsecured.

In such a scenario, the financial system would completely break down, along with the judiciary. Law enforcement would be overwhelmed, the likely outcome being the imposition of martial law in the hardest-hit areas, probably most of California, Florida, Nevada, Arizona and most major cities. Naturally, the stock market would implode, as bloated as it already is.

If you think the financial meltdown of 2008 was close to the edge, imagine just 10 million mortgages going unpaid and the resultant calamity. The bright side may be that you get to own your home free and clear, the downside being that you may have to arm yourself to defend it, and, in the end, you probably couldn't transfer clean title, so you couldn't sell it or take out a home equity mortgage against it.

The choice is there. Personally, I have no respect for anyone who knowingly purchased a home at inflated prices over the past 5 or 6 years and now wants to screw the bank because property values have fallen. Stop paying, and they'll fall some more. At least most people will have a place to live.

America is now sailing in uncharted waters. The chance of the system breaking down to a point of widespread civil unrest is probably greater now than it has ever been, even moreso than during the financial breakdown. Middle and lower class Americans have watched banks being bailed out (with taxpayer money), bankers hauling down huge bonuses and Wall Street partying like it's New Year's Eve, while most of their neighbors are losing their jobs, their homes, their families and their self-respect. The unfairness of the nation's financial condition (to say nothing of the welfare state) has reached a boiling point at which more than just a few people are considering the option of strategic default, hoarding cash and letting the chips fall where they may.

We certainly do live in interesting times.

(I'll be editing this later to include some links)

Amid Confusion, Sweat the Small Stuff

Did I mention that CASH IS KING? Only about 1000 times, and today's market action - not only in stocks, but in commodities too - confirmed that sometimes the best thing you can do with your money is to simply keep it in your pocket. Not only were stocks, gold, silver and oil all lower today, but the dollar gained against most other major currencies, so those greenbacks are actually doing better today around the world than yesterday.

Economics is not rocket science. In fact, it's not even regarded as a science, probably because the rules are different everywhere and, like these days, when the rules don't exactly suit those in power, they change them. How anyone is expected to make predictions on directions of entire economies is an open question. So-called "experts" are often widely off the mark in their predictions of everything from GDP to unemployment to the price of soybeans, making it advisable to just ignore most of the market "noise" and focus on what's really important: Your hoard of green.

If you own stocks, today was probably not a particularly pleasing event, but, that's how it goes - up and down - keeping you and your financial future in a perpetual yo-yo state. Did you ever stop to think that maybe that's because the big-time players like Goldman Sachs, Bank of America, the Federal Reserve and the US Treasury want you to be in such a condition?

You, as an individual taxpayer and person, aren't supposed to be able to game the system. In fact, the major forces in the market don't even want you to be a player. That's why they want your money in 401k plans, retirement funds, annuities and bonds, all overseen, managed and mishandled by somebody else. They play with your money, even though they say it's yours... when you're 59, or 65, or after you've paid the penalties and taxes.

A couple of years ago, I suggested on this blog that it might not be a bad time to dump your entire portfolio, even those sacred "retirement" funds, pay the penalty and whatever taxes might accrue and convert it all to cash. Put it all in a bank account, maybe in money market funds or CDs, and just keep it that way. That was 2007. We were at the all-time height of the longest bull market since World War II. Sounds like pretty good advice. I'd say that even if one took a 25% hit between penalties and taxes, one would still be ahead today after all the carnage and even after the spectacular rebound. Heck, if you were smarter than me and put some of it into gold or silver, you'd be even further ahead.

So, while the markets churn along with your stomach and you watch your retirement fade into the distance, you have probably overlooked the obvious fault points of your "plan." You're not watching your own consumption. Now, I'm not saying that you should pinch every last penny, but Americans have, over the last 30 years, become the ultimate consumption machine, quaffing down $4.00 lattes, spending $3 a gallon on vehicles which only get 12 miles per and generally living for today, assuming that Social Security will be there for all of us down the road.

Basically, if you are basing your retirement planning inclusive of pension plans and Social Security, you are as blind as the fabled three mice. Baby Boomers are only now beginning to retire, with the bulk of them hitting the golden years of 65-67, not now, but in 2013-2017. Why do you think the government is so hell-bent on passing health care "reform?" The more they and their friends in the insurance/hospital/funeral/cemetery business consortium can kill off over the next 3-5 years, the less they'll have to pay out. That's why they keep pushing the pills along with the other nonsense instead of promoting healthier lifestyles. Sadly, most Americans are pill-popping fools to the extent that real drug addicts glaze over with jealousy.

So, if you insist on Starbucks, SUVs and porterhouse steaks, at least ride a bike once in a while, put a dollar away in savings every time you buy a latte or expensive coffee and have a salad once in a while. Your colon, in addition to your heart, will thank you in many ways. Examine your lifestyle and your planning. Chances are very good you're working with unsustainable assumptions, Social Security at the top of the list, followed closely by mutual funds, retirement promises and stock market analysts.

Dow 10,603.15, -122.28 (1.14%)
NASDAQ 2,291.25, -29.15 (1.26%)
S&P 500 1,138.04, -12.19 (1.06%)
NYSE Composite 7,329.83, -113.85 (1.53%)

Declining issues wrestled down advancers, 4784-1744. New Highs: 275; New Lows: 47. Volume was strong. The market was down. Go figure. Maybe those loan losses reported by Wells Fargo and Bank of America have people just a little bit nervous. The slowdown in new home construction couldn't have helped. Sure, the stock market is up, but who's getting raises? Who's creating jobs? Nobody, pretty much. And, if you're one of those people buying a new home, good luck with that. You're just giving yourself a big fat minus sign next to your net worth. Home values may decline another 20-30% in some areas of the country. Elsewhere, they'll remain flat for the next five years, at least.

NYSE Volume 5,436,784,000
NASDAQ Volume 2,393,919,500

Oil dipped $1.87, to $77.62. Gold fell $27.00, to $1,113.00. Silver lost 92 cents, to $17.88. All wins for those who believe in deflation.

When the real problems occur, when banks actually fail instead of being bailed out, when the piper must be paid for all the federal government deficits, cash will not only be king, it will buy everything and anything it wants.

The Three C's of Business

A long time ago, I used to own a number of weekly newspapers, one of which I started from scratch, and with the success of that enterprise was able to parlay into purchasing a building, my own presses, a complete print shop, four other weeklies and a world of headaches.

Nonetheless, when I was in my entrepreneurial heyday, I was often asked what had gotten me to my level of success. There really were a variety of correct answers, but mostly my drive, desire and commitment to become a viable media player were the factors which got me from nowhere to somewhere better.

At one point, I came up with the idea of the Three Cs for business success. They actually relate to just about any field of business endeavor, and I rediscovered them deep in my subconscious just last night over a couple of beers.

The Three Cs for Business Success:

Confidence - This is probably the most important and frequently overlooked factor in one's business life. A confident person is one who walks with his or her head high, beaming with enthusiasm about what they are doing. Confidence can wane or rise, depending on a wide number of factors. Everything from your sex life to cloudy weather contributes to your overall psychological makeup, and it's important to keep an eye on one's own confidence level because in life, as in business, others can sense desperation, apathy and all the other malevolent emotions which can lower one's self-esteem.

Oddly enough, we may not even know when our own confidence is lacking, but, sure enough, others can sense it. Some ways to keep your confidence high is to take on tough tasks at work or even in your own sphere. I actually build my confidence by doing crossword puzzles and Sudoku, those oriental numbers puzzles that have become all the rage of the latte and newspaper crowd. Just recently, I began doing Sudoku because I thought I couldn't. After struggling with the first medium level puzzle over a number of failed attempts, I finally set my mind to it and got it. Now I scream through Sudoku and crossword puzzles. Every time I successfully complete one, my confidence - that I can do anything if I set my mind to it - grows. Yours can too.

Competence - With every task in life, one must be prepared and have the proper tools with which to complete the task. A plumber without wrenches or a carpenter without a saw could not do a professional job, thus, the need for the right tools in the hands of a competent craftsman. Business is no different. The mor one knows about a particular line of work, the better he or she can become at it. You wouldn't go into a real estate negotiation if you were a product line manager for soft drinks, would you? Knowing your field of endeavor and working at it until you become highly skilled is an invaluable asset in business. Competent workers, managers or executives are difficult to find, and, usually, because they are often bright and have entrepreneurial instincts, are equally difficult to please and/or keep as employees.

Cash - You can't do much of anything without money. You could have the greatest ideas on the planet, but without the means to market them - meaning mostly money - those ideas will wither and die on the vine like overripe grapes in the sun. The saying, "cash is king" is almost always true. Cash gets better deals, better terms, and is respected the world over. A person with a sizable cash position can accomplish almost anything, especially the means by which to acquire more cash. Having a strong cash position cannot be understated. Cash does not have to deal with flat-headed bankers, testy suppliers or drawn-out negotiations. Cash, when it is used as a means to obtain credit, proves itself even more valuable. A person with $100,000 need not spend it on what he or she wants, but can use it as collateral on a loan of the same amount, and once creditworthiness is established, even more and at lower interest rates.

People with substantial amounts of cash generally don't bother with credit unless there's a definite advantage to keeping one's cash in hand, which often there is, especially on larger deals. If you want respect in the business community, pay with cash, have a large amount of cash on hand at all times and deals and offers will find you.

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In the markets today, stocks were all the rage, as the major indices bounced back from Friday's down day. Investors looked right past Citigroup's horrifyingly large loan losses toward the health care sector, where the Massachusetts senate seat formerly held by Ted Kennedy was trending toward the Republican in the race, Scott Brown, who held a narrow lead in the polls over Democrat Martha Coakley. Voting ends at 8:00 pm ET. The significance is that if Brown wins, the democrats will no longer have a super-majority (60 seats) in the senate, and the year-long battle to push through health care reform - which is hated from almost all sides - may go up in smoke and signal a strong victory for not just the Republican party, but for democracy in general.

Dow 10,725.43, +115.78 (1.09%)
NASDAQ 2,320.40, +32.41 (1.42%)
S&P 500 1,150.23, +14.20 (1.25%)
NYSE Composite 7,443.68, +86.89 (1.18%)

Advancing issues beat down decliners, 4847-1550, a better-than 3:1 ratio. There were 573 new highs to just 62 new lows, though volume was moderate.

NYSE Volume 5,194,738,000
NASDAQ Volume 2,079,933,000

Oil managed a gain of just 5 cents, to $78.05, while natural gas fell 11 cents, to $5.54. Milder weather and a glut of energy supplies are beginning to kick in as Winter progresses. Without anything upon which to slap up higher prices besides the idea that certain large energy conglomerates want to make more money, energy prices should continue to decline into Spring.

Not so with the metals, though, as they had another banner day. Gold gained $10.00, to $1,140.50. Silver was up 37 cents to $18.80, the highest closing price since December 4, 2009, and close to the 21-month high of $19.18.

Got Bank Stocks? Sell Them on Monday.

Ever since the financial meltdown - which actually began in August of 2007 (Trust me, I'm a doctor.) when the Primary Trend in the Down Jones Industrials turned from a bull to a bear - the banks have gotten a lot of attention. Many of us do our banking at either a locally-owned bank or a friendly Credit Union. If you're smart enough to have made the decision to keep your money out of major national banks, good or you.

The too-big-to-fail national banks - Bank of America, Wells Fargo, Citigroup and JP Morgan Chase - also known as money center banks, are the main reason for the economic calamity which still grips this country, and to a lesser extent, the rest of the world. These were the ones engaged in all that risky behavior with sub-prime mortgages, credit default swaps and, more recently, the bailouts. Add to them Goldman Sachs and Morgan Stanley and you have the gang of six which nearly brought down Western capitalism as we know it.

Two of their brethren - Bear Stearns and Lehman Bros. - could not be saved, and were more than likely swallowed up more or less whole to hide the extent of the fraud, inside dealings, manipulations and other horse-trading that was so widespread during the late 90s and though the first years of the new millennium. What's troubling is that they are nowhere near out of the woods. The four big banks mentioned above are nearly insolvent. Only free money from the Federal Reserve, in the form of overnight loans at just about ZERO percent, has kept them from complete collapse. They are still poring though the toxic assets on their books, hiding and keeping off market millions of foreclosed homes and struggling to stay in business.

In case you're unaware of the ongoing problems with the big banks, just consider: JP Morgan's provision for credit losses totaled $7.28 billion during the fourth quarter.

That's about all you have to know... well, and that the other banks will report similar losses. Somehow, through financial alchemy which only the banks can perform, JP Morgan Chase posted a 4th quarter profit. Let's face it, They're full of brown stuff. Credit card delinquencies were at 8.64% in the 4th quarter. People are defaulting on credit cards at an historic rate. They're also walking away from homes in droves, many of them because they are upside-down, in other words, the amount of the mortgage exceeds the fair market price of the home.

Without work and with mortgages higher than the value of their homes, the latest trend is to make a strategic default, either through bankruptcy or by just failing to make mortgage payments, leading to the eventual foreclosure. This is what's known as a self-reinforcing feedback loop. The more home prices fall, the more people default, leading to more foreclosures and lower prices again. Soon enough, it's going to become cheaper to rent than to own as vulture landlords scoop up the foreclosed properties at a fraction of their value and rent them out to strapped, credit-less former homeowners.

The banks will never survive the onslaught of foreclosures that are due to escalate once again this Spring. Common practices by the banks now are to offer buy-downs, short sales, loan modifications and extensions in order to avoid foreclosure. Once a property is foreclosed upon, the banks are on the hook for the upkeep of the property and the taxes. With homes in some areas sitting on the market for a year to two years, eventually selling for much less than the foreclosed value, the banks are in a tough spot and doing all they can to prevent foreclosure, a lengthy, expensive process which seldom produces a positive result.

Eventually, in a foreclosure, the bank gets the property, the homeowner is put out and the vacant property deteriorates, leading to further losses. There are numerous reports, especially in the Northeastern "rust belt" of banks starting foreclosures but never finishing the process. Homeowners, thinking they have to bail, leave the property, only to receive tax bills later on, because the bank did not proceed with the sheriff's sale.

The whole mess is not going to end soon or well. It's going to take 6-10 years for the banks to work off the excesses of the sub-prime credit expansion. In The meantime, property values and interest rates will remain at historically low levels. If you own shares of any of the aforementioned banks, you should dump them if you haven't already. In fact, with the market close to highs, today could have been a warning shot for further declines to come. The economy continues to stumble along and eventually, the stock wizards will get out of the way, Government bailouts and stimulus have only paved the way for another round of declines in the stock market and in prices generally.

Dow 10,609.65, -100.90 (0.94%)
NASDAQ 2,287.99, -28.75 (1.24%)
S&P 500 1,136.03, -12.43 (1.08%)
NYSE Composite 7,356.79, -91.73 (1.23%)

Losers beat winners by a wide margin, 4664-1864; there were still 340 new highs, to just 44 new lows. Volume was substantially better than it has been all week. Uh, oh.

NYSE Volume 5,426,332,500
NASDAQ Volume 2,662,195,750

With the dollar stronger, oil took a nosedive, losing $1.44, to $78.00 (still too high). Gold lost $12.00, to $1,131.00. Silver was down 22 cents, to $18.44. The pause in the rise of the precious metals may be signaling a buy. If the economy worsens, the dollar should weaken (though as gauged against other currencies, some of which aren't doing very well themselves, the dollar may just waffle around), sending gold and silver higher. Even if the dollar doesn't lose value, the metals may still be the play as more and more people look for their perceived safety.

Tip for the day: Go to a coin dealer and buy a common silver dollar, or, as many as you can reasonably afford to put away for a couple of years. It's a near-certainty they'll be worth just as much or more in 2012. You can't say that about any other asset class, except maybe bonds.

On Getting What You Want, Part 1

Wall Street and the financial markets are odd and unpredictable. That's why some people win and some lose, and why the individual investor is at a disadvantage compared to those wizened professionals who ply their trade daily in stocks, bonds, et. al..

Because the whims of the market are so unpredictable and can turn on a dime on a news item, a press release, an event - economic, social or political - the average Jane and/or Joe is likely to suffer losses when pros have already gotten out ahead of the pack. The law of the jungle applies, and always has. The fittest get fatter; the weak are thrown to the wolves.

Noting that, the marketeers have finally gotten some news upon which they can act. Reported after the closing bell, Intel (INTC, 21.48) reported a fourth-quarter profit of $2.3 billion, or 40 cents a share, compared with a profit of $234 million, or 4 cents a share, for the year-earlier period. These numbers were well ahead of expectations. In fact the company delivered a 33% earnings surprise, good as gold in anybody's book.

Tomorrow ought to be a red-letter day for tech stocks, as one of the firebrands, Intel, has set some heat under upcoming earnings for the rest of the sector. Trouble is, as great a company as Intel is - and it's definitely top-shelf - the stocks was a loser for the entire 00s decade and seems to be permanently stuck in a range just above its historic lows, because it is already overvalued, by just about any measure.

Intel's price/earnings ratio, using trailing figures, is about 28. Even if the company has quarters equal to this one for the next three running and the stock doesn't go up, it will still be trading at more than 13 times earnings, meaning it would take 13 years of similar profitability just to get your money back. It does carry a dividend of 53 cents per share, but at the current price, that's a yield of less than 3%. It's a great company, all right, and it would be a buy at any price below 15. 12 would be a good starting point, but it will likely never go there. Since Intel isn't going to ever move, tech traders will begin looking elsewhere tomorrow. Don't be surprised if Intel trends lower over the coming weeks. It's a dog and the pros know it, even though it's a part of just about every fund portfolio.

Before that after-the-bell experience, stocks did what they've generally been doing for the past month. They rose slightly.

Dow 10,710.55, +29.78 (0.28%)
NASDAQ 2,316.74, +8.84 (0.38%)
S&P 500 1,148.46, +2.78 (0.24%)
NYSE Composite 7,448.52, +18.38 (0.25%)

Advancing issues were all over decliners, again, 3792-2662. New highs came in at a whopping 554; there were just 53 new lows. Volume remains subdued, which has become acceptable, but the only people trading are funds and pros. It's kind of a closed loop, but as long as nobody sell, stocks will just keep going up. That cannot happen indefinitely, however, and the longer the rise, usually the steeper the fall. The rally is now in its 11th month without a meaningful correction, a great time to SELL.

NYSE Volume 4,470,046,000
NASDAQ Volume 2,301,493,500

Hooray! Oil dipped 30 cents, to $79.35, and natural gas, after a big buildup on CNBC, saw its price shaved by 11 cents, to $5.57. Seems demand for the #1 energy product just hasn't been as great as those speculating for higher prices had hoped. Its already nearly doubled since just 8 months ago, and the US supply is still at 100 years or more. If supply and demand economics were truly in play (they're not, the price is manipulated by big energy firms - you know who they are), natural gas would be selling at wholesale for about $2/1000 btu, and your heating bill would be half of what it is now.

Unfortunately, most Americans who heat with natural gas are stuck with the absurdly high prices charged by local monopoly utilities. Thus, we overpay, and have been for years, especially since deregulation (thanks again, Ronald Reagan).

The stable commodities, the ones you should own, gold and silver, each registered solid gains. Gold added $7.10, to $1,144.00, while silver was up 9 cents, to $18.64. Both are on the verge of major breakouts, especially silver, but Wall Street hates these commodities because they compete with the electrons and protons and pieces of paper they like to peddle, stocks.

Were gold and silver allowed to rise to their actual inflation-adjusted levels, they might be double or triple where they are now. Even if the Wall Street shorts don't cover, they still should return better than stocks for years to come.

Getting What You Want, part 1

One often has to go to extreme measures in order to achieve goals. There are forces working against you, like headwinds keeping a kite grounded or a plane slowed. Sometimes, these headwinds are being blown by your trading partner, or, in layman's terms, your buyer, if you're a seller.

I recently completed a successful negotiation for some items priced about 3 times what I had originally expected to get for them. The negotiations consisted of me asking the prospect for an offer. When he refused and asked me to name my price, I used the first rule of haggling: go high and then add 20%. To my surprise, the prospect was agreeable to my price and terms, but, as I found out, was a chronic payment-delayer, continually adding a day and an excuse for when the transaction would be completed.

This activity continued over the course of 6 days, until I finally took action and laid it out in the simplest of terms, that the deal had to be done, or he should walk. After an abrupt retort, at which point the prospect was willing to walk away, I was forced to detail his abhorrent behavior in quite unsavory terms (in other words, I swore at him up and down, called him names and shamed him). I thought the deal was then kaput, but, to my surprise, the prospect actually was swayed and contacted me, explaining that he thought I was right. A few hours later, the deal was done, even though I called him names and told him I would have had sold to him for less had he made a reasonable offer in the first place, but instead decided to let me set the price (and, by that, the agenda).

So, the moral is that if a deal is breaking down, and you believe that the other party is stalling - for whatever reason, it's not important - put him or her on the spot very aggressively. Be the lion and you'll find many lambs upon which to feast.

That's one way of getting what you want, or, in this case, even more.