Maybe I was just not paying enough attention...

What did Bush know and when did he know it?

Oh, not about weapons of mass destruction….. No this is about the mortgage / banking / insurance fiasco. We are all guilty – people were trying to tell us, and until it hit in our own neighborhood most of us did not pay any attention.

I have found information that New York Governor Eliot Spitzer was trying to get people to listen about the mishandling of funds when Spitzer was brought down – this article was from February 14, 2008.

As a reminder of history – Elliot Spitzer was disgraced by being discovered in a hotel room with a very expensive call girl. He left office and the people did not have the benefit of what he was trying to say.

Elliot Spitzer, a Democrat, was previously in the DA’s office of NYC, moving up to District Attorney. In that capacity he took on the .coms, the stock market, financial organizations – and did it like prior organizations took on organized crime.

Here’s a Wikipedia link to some basic information about Elliot Spitzer.

But I am starting to think that the “people who watch people” were keeping a close watch on Mr. Spitzer in order to discredit him and shut him up. He wrote an opinion piece for the Washington Post, February 14th, 2008, in which he said:

“Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks.”

He goes on to point out that state attorneys generals in 49 states tried separately and together to prosecute issues relating to sub-prime loans. He says not only did Bush and his cronies do nothing – they worked together to try to protect the deceptive practices and keep restrictive laws from being placed on the books.

The administrations handcuffed the local prosecutors using a federal agency called the Office of the Comptroller of the Currency (OCC). Here is how they did it, says Spitzer:

“In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.”

Read the whole article by Spitzer ends with this prophetic sentence:

When history tells the story of the lending crisis and tells of the effects on the lives of so many innocent homeowners, the Bush folks will not be judged well.

Another writer did an article for the Baltimore Chronicle, Greg Palast, on March 14, 2008. The author is firmly slanted away from the Bush administration, but his facts do check out. His article was about Ben Bernake, Federal Reserve Board Chairman, secretly handing over $200 billion to mortgage bank industry speculators during the first week in March, 2008.

The point of this article is that up until about the 5th of March, there was one person making trouble for them with these risky loans – that person was Elliot Spitzer. Mr. Spitzer was making too much noise by ‘following the money’.

Here is his short form description of what happened:

“Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and it’s variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’”

“Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.”

He discusses that instead of policing the banks, Bush’s OCC people went after Spitzer and anyone else that tried to get in the way of these predatory loans. The government made use of something called “federal pre-emption” (which will have to be studied on its own) – Bush’s government ordered the states to not enforce their consumer protection laws! They actually filed a lawsuit to stop Spitzer from investigating mortgage practices.

Then the poop started hitting the fan – Countrywide’s stock fell 50%, Citygroup was down 38% -- neither of which pleased the ‘sheiks of Arabe” who controlled the biggest portion of the stocks in these two businesses.

The second week in March 2008, the Carlyle Capital Group, went bankrupt! I didn’t know who the Carlyle Group were but it is apparently headed by former Bush(1)’s Senior Counsel James Baker – with partners like George Bush, the Bin Laden family and lots of other greedy disreputable people.

Michael Moore, (I know not always a reliable reference), alleges that Bin Laden family actually were forced to liquidate their interests in the Carlyle because they were causing embarrassment to the group. Moore states that the Carlyle is the 11th largest defense contractor in the USA and has line by line evidence of his information website. – I did look at the site; I did not do any fact checking. This information looked pretty interesting though.

As a result of the Feds $200 billion bailout in March, the mortgage companies’ stocks went up in price ---- Countrywide’s stock went up 17% in one day. Citygroup’s stock went up $10 billion in one afternoon!

Spitzer was arrested on the same day that the bailout occurred. Wow – what a coincident! Amazing.

On February 13th Spitzer signed papers that said in part:

“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.”

Then he went to a hotel and apparently ordered take out food and a call girl. He was arrested. Well that did shut him up, and apparently scared off everyone else who was looking into this…..and it took about a half year to get in so deep that they had to give even more money…..

Now I have to figure out why they had to do this in the light of day this time. Was it the amount of money – was it because every place a good accountant could ‘hide’ $700 ‘KaTrillion’ dollars was used up already? Was it because an election was going to put its spin on this – and they had to do it first? Let’s find out. Please give me your input on this information.

Related Subjects:
Short Sales
My take on short sales (selling a house for less than its mortgage) – and why banks will drag there feet on many of the homes that are at risk with the subprime debacle.

Big one and one I have not heard anyone talk about is MORTGAGE INSURANCE. Many lenders have required this insurance for new buyers, people with less than 20% down payment – FHA loans – people with bad credit scores ----- unsophisticated borrowers…. You know, exactly the same borrowers who are at risk now for losing their homes with the housing market crash and burn.

Why on earth would a mortgage holder ever negotiate with a borrower to take less than then mortgage face (even if the market has reduced the price to half its price)? The home is insured for full price. The borrower was forced to purchase mortgage insurance (about $200 per month on a $200K home) as a condition of purchase; this insured the mortgage holder’s interest in the property.

So, John Schmuck, the marginal, first time, home owner pays a much higher monthly payment than his neighbor because he does not have the resources to pay more, (does that make sense?); Then when situations change - ARM adjusts up, property taxes increase, HO insurance increases – anything that makes it impossible to meet the increased payments. The bank “bye bye” we can get our whole mortgage repaid by the insurance the home owner had to buy!

So, don’t expect to find them renegotiating any loan that has mortgage insurance on it.

Secondly, if the buyer is still making full payments on the house while they are talking to them about renegotiating the mortgage – why would they do anything? The homeowner will have to be in severe default in order to get the banks to even sharpen their pencils or ask their supervisor about this.

Another thing to consider is that banks leverage themselves and sell stock. In order to borrow money at good rates they have to have strong balance sheets. The value of stock is determined by investor confidence and that is strongly determined by the value of their assets. As long as the house (asset) is on the books at mortgage value it has a value on the books that that is fixed. Whether the house is worth less does not matter – what matters is the value of the paper (mortgage). When the banks reduce the value of an asset for the borrower, they change their assets --- if they do that for a lot of borrowers, it really screws up the bottom line.

Of course, if borrowers just throw in the keys, don’t have mortgage insurance, and walk away -- Then they have a multifaceted problem. Now they own a home that is what ever value the market will pay, and they have to pay taxes, insurance, maintenance – At that point they are probably in a position to make a deal. A little too late for the displaced homeowner.

Newspaper article

From – Life Magazine – December 15, 1972

I read old magazines and love the historical perspective that comes from reading "primary" documents. Ironically I was reading this one, this week, on a day that John McCain and Pres. Bush spoke about opening up domestic oil fields. (errors or word omissions in text are probably because of OCR scanning article into word program).

Everything old is new again.

This lead me to read statistics at http://www.eia.doe.gov/ for what our real reserves are. Take some time and read through these - when you get into the numbers some of them go back to 1890's - many to 1973, and the rest seem to be back to at least 1982.

Some numbers were surprising to me -- for instance, we get oil and natural gas from the US Virgin Islands; we get 6,693,000,000 barrels more per day now from imports than we did in 1973. And, of course, we go no oil from Iraq in Jan 1973 - we got 10,000,000 per day barrels from Iraq in Mar 2008, we spiked to 1,126,000,000 per day in December 2001(we did not invade until Spring 2003) (?). (history is going to tell us that there is more to this than we know).

Just interesting -
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ENERGY & AMERICA
By John G. McLean, chairman and chief executive officer of Continental Oil Company, is also chairman of the National Petroleum Council’s Committee on US Energy Outlook. The committee’s initial appraisal provides the statistical basis for the following. The conclusions are Mr. McLean’s.
LET’S FACE THE FACTS ABOUT OUR ENERGY OUTLOOK
The nation’s requirements for energy, will about double between now and 1985. In this period, we shall have to rely upon oil, gas, coal and nuclear power for at least 95% of our needs. If present trends continue, our indigenous resources of these materials will not be developed fast enough to meet our growing requirements.

NATURAL GAS IS SCARCE.
Shortages already confronting us will increase. Domestic production is projected to decline about 1/3 during the next 15 years. With more imports of natural and liquefied gas and synthetic gas from naphtha and coal, we may hold gas availability at about its present level. This will be sufficient to satisfy less than half of our potential gas requirements by 1985.

CRUDE OIL IMPORTS WILE HAVE TO QUADRUPLE.
Domestic production of crude oil is projected to show little net change. To meet rising demand, imports will about quadruple reaching 10 to 15 million barrels a day in 1985. Even larger imports will be needed lf we fail to meet our goals with respect to nuclear power and coal.

NUCLEAR POWER – WHERE IS IT?
We should launch a major new effort to construct the equivalent of at least 280 nuclear energy plants of 1,000 megawatts each during the next 15 years. Today, we have the equivalent of only ten such size plants operation and only 46 actually under construction. Progress is being retarded by technical difficulties and environmental restraints.

COAL-WE PRODUCE NO MORE NOW THAN 50 YEARS AGO.
Production of coal should be approximately doubled during the next 15 years. We have adequate reserves. Limiting factors are the availability of manpower, environmental considerations, and health and safety precautions.

INVESTMENT - WE'LL HAVE TO DOUBLE IT.
Enormous capital inputs will be necessary to provide for our energy requirements. Between now and 1985 the United States energy industry will have to invest between $400 and $500 billion in new productive and distribution facilities, an annual average of about $30 billion, compared to present outlays of about $16 billion.

NEAR TERM SHORTAGES - WE CAN T ESCAPE THEM.
We may be able to relieve our near term energy problems through appropriate government and industry action, but there is no realistic probability of a complete escape from them. This is true because of the long lead times - often five to eight years - required for the development of major new energy supplies. The critical "balance wheel'' will be the volume of foreign oil imports; this will be the element which will adjust for our failures or successes in other energy areas.

WHAT DO THE FACTS FORESHADOW?
We shall become increasingly dependant upon foreign countries, primarily in the Middle East, for a vital portion of our energy supplies. At the present time we obtain about 26% of our crude oil an 12% of our total energy requirements from foreign sources. By 1985, we will probably draw about 40% to 55% of our oil and 23% to 32% of our total oil from abroad.

CONCENTRATED DEPENDENCE.
Most of the oil will have to come from the eleven OPEC counties (particularly Saudi Arabia and Iran), which today have 85% of the Free World crude oil reserves outside the United States an Canada and account for 90% of the oil exports moving into world markets. Dependence upon a small number of distant foreign countries for a vital portion of our energy supplies will be a new fact of life in the history of this nation. We shall need to take a new look at our foreign policies with respect to the Middle East and attach to them a much higher priority than they have thus far been accorded.
We will be vitally dependent upon peace in that trouble area for continuity in oil supplies; our friends In Western Europe and Japan will be in a similar position; and Russia will be the only major world power In the coming decade that will be self-sufficient in energy resources. The diplomatic and nations security aspects of this situation demand a great deal more attention than they have yet been given.

BALANCE OF PAYMENTS PROBLEMS.
Growing oil and gas imports will provoke a large growing deficit in the U S balance of trade in fuels. By the early 1980’s, this deficit could be in the $20 to $30 billion range, compared to a current deficit of less than $3 billion. Today, our total exports of goods and services are only about $66 billion. To pay for our imports of fuel, we will need to seek additional exports of other goods and services.
What will we sell and to whom? We cannot look to the industrialized countries of Western Europe and Japan, because they will be struggling to increase their own net exports to pay for growing fuel imports. Ultimately, the situation can come to equilibrium worldwide only when the oil exporting countries are able to absorb greatly increased imports from us and other oil importing countries. But they do not have the populations, markets, and economic infrastructures to accept large imports from us. This problem will be a critical national issue in the decade ahead.

NEW FINANCIAL CENTERS
Our growing purchases of oil and gas coupled with those of Western Europe and Japan, will create major new centers of financial power. By 1985, the oils producing counties of Africa and the Middle East could be collecting oil revenues at an annual rate of almost $50 billion. Most of these countries are not yet ready to use internally new funds of this magnitude. A large portion of the oil tax revenues will thus move into the short – and long-term money of the Free World in ways, and with impacts, which are difficult to predict. One clear possibility is that these countries could become large equity holders in the financial institutions and industrial companies of the United States, Western Europe and Japan.
ENERGY COSTS ARE BOUND TO RISE.
We have exhausted a large share of our cheapest and most accessible energy materials. New indigenous supplies will come at higher prices. Coal mines will be further underground; oil and gas wells will be drilled to greater depths and in deeper waters offshore, the development of oil shale and other synthetics will require expensive new technology.
At present the composite wellhead or minemouth cost of energy produced in the United States is about 35 cents per million BTU'S. By 1985, it could easily be 50% to 100% higher.
These increases are significant, but they can be absorbed in our economy without serious disruptive effects. For the past decade, the real cost of energy in the United States has been declining. Today, we spend only about 5% of our national income for fuels. We are in a favorable position vis-a-vis the other world powers with respect to basic energy costs and will probably continue to be so even after the increases I have suggested. Our most urgent problem is one of adequacy and continuity of energy supplies - not one of energy costs.

WHAT CAN WE DO TO IMPROVE OUR SITUATION?
We should take prompt action to establish a single, high - level agency in our government to develop a national energy policy and to coordinate our efforts relating to energy matters. I do not mean that our federal government should play a larger role m the discovery and development of natural resources. This task should be left to private enterprise. The chief mission of the central government agency should be to establish priorities and guidelines and to eliminate delays, conflicts, and confusion.

WE CAN INCREASE DOMESTIC ENERGY PAODUCTION.
We should take prompt action to stimulate the development of our indigenous energy resources. We have an adequate resources base, our problem is to get new supplies at a faster rate. We need some practical trade-offs in the ecological area. The production and consumption of energy inevitably involves some ecological impairment. We cannot achieve our environmental goals overnight and still give the U S economy all the energy it requires and the pubic demands. Some pragmatic, graduated approaches to our ecological goals are urgently needed. Here the federal government should take decisive action and very promptly.
We need to decontrol natural gas prices and to establish that the price of synthetic gas manufactured from coal and naphtha will not be subject to federal restraints. Our present preoccupations with imports of liquefied natural gas from Russia and Algeria are a national absurdity in the face of continued control of indigenous gas prices at much lower levels.
We need to accelerate the leasing of federal lands on reasonable terms for resource development, particularly the Outer Continental Shelf which contains some of our most promising potentials for new oil and gas discoveries.

WE CAN CONSERVE ENERGY
We should reduce waste in the consumption of energy. I am not suggesting curtailments which would have a negative impact on the growth of our economy. On the contrary, I believe the consumption of energy should be encouraged because it increases the efficiency of our economy - providing the energy used for socially desirable ends.
There are, however, many areas in which we - could conserve energy without impairing economic growth. For example, 20% of our energy is used for commercial and residential heating, savings can be made through better insulation. About 25% of our energy is used for transportation, savings can be made through the development of mass transportation and smaller and more effluent automotive engines. Another 25% of our energy is used for the generation of electric power in processes which waste about 70% of the energy input, savings can be made through the development of more efficient conversion systems.

WE CAN COOPERATE WITH OTHER NATIONS.
Most of the major industrial nations of the Free World will be facing the same energy problems as we do. Clearly, the situation provides opportunities for cooperative research and engineering in the development of new energy sources. And clearly, there is a need for collaboration in the development of a sound framework of political relationships with the countries of the Middle East to promote stability and peace in that area.
WHAT ABOUT OUR LONG TERM ENERGY POSITION?
While our medium-term problems, (through about 1985), are acute, our long-term energy position is reasonably sound. Our country is liberally endowed with energy materials. To meet our long-term requirements, we have:
o Potentially recoverable oil reserves sufficient to meet present demands for over 65 years,
o Potentially recoverable gas reserves sufficient to meet present demands for over 50 years,
o Measured and indicated coal reserves, commercially accessible with current mining methods, equivalent to nearly 300 years' supply,
o Uranium reserves sufficient meet our present total electric power needs for 25 years, and
o Recoverable shale oil reserves sufficient to meet our oil needs at present demand levels, for about 35 years after our natural oil reserves are exhausted.

Taken in the aggregate, our potential energy resources have an energy content sufficient to meet our needs for at least 200 years, at present consumption rates. Long before the end of that period, advances in technology should bring us new energy sources, such as nuclear fusion and solar power, which will greatly diminish the drain upon our natural energy materials.
It is our medium - term energy outlook that is of serious concern. We can and will solve these problems. But the task will not be easy, and it will require a greater sense of urgency and commitment on the part of both industry and government than presently exists.



Signed by: John G. McLean, Continental Oil Company

This statement comprises excerpts of an address by Mr. McLean. For full text in booklet for form write Continental Oil Company, Dept LF, High Ridge Park, Stamford, Conn. 06904