How to cut your mortgage costs in half

This NYT article contains an incredible story. Set in Nevada (but likely to be played out all over the country), we learn of the Terrible Herbst chain of gas stations / convenience stores featuring slots, candy and beer. A combination that would seem to be a winner in bad times. The recently failed First National Bank of Nevada held the mortgage on the Terrible Herbst chain. The FDIC comes riding, like the U.S. cavalry to the rescue.

When regulators took over the First National Bank of Nevada last year, they faced a showdown with the Terrible Herbst, the mustachioed cowboy who boasts of being the “best bad man in the West.”

This was no real gunslinger, but the name and logo of a chain of gas stations and convenience stores in Nevada that feature slot machines next to candy and beer.

The family-owned Herbst chain, auditors at the Federal Deposit Insurance Corporation concluded, did not generate enough sales at its Reno-area gas stations to support the repayment of a loan, leaving auditors with three bad choices: Move to take over those stations and put the government in the gambling business. Cut off any flow of additional loan money. Or sell the loan at a steep loss.

What to do, what to do, what to do with Terrible Herbst? Well, ya got to know when to hold 'em, know when to fold 'em, know when to walk away, know when to run. Consider the options:

In the case of Terrible Herbst and its Reno-area gas stations, officials at the F.D.I.C. considered taking the highly unusual step of applying for a temporary casino license, allowing the agency to operate the gas stations and the electronic games after perhaps foreclosing on the nearly $10 million loan, one official involved in the effort said.

Another option, simply cutting off additional advances of cash from the loan, was ruled out because the business might close, making it nearly impossible to collect any of the outstanding principal.

What to do, what to do, what to do. Okay. Here's the plan:

The resolution of the case turned out to be a windfall for Terrible Herbst. The government put the loan on sale, and who should buy it directly from the government but the Herbst family, at a discount of more than 50 percent.

The government ate the loss, but at least it collected on some of the bad debt, the F.D.I.C. official involved in the deal said.

Executives at Terrible Herbst, who said they never formally refused to pay off the loan in full, were hardly disappointed.

“It worked out just fine,” said Sean Higgins, the company’s general counsel. “At least for Terrible Herbst.”

I think I understand.

Herbst owes $10 million on the properties, but can't generate enough income to pay them off.

FDIC doesn't want to takeover and run the properties, doesn't want to loan any more money. So, FDIC will let the government take a loss. Sell the properties at a "MORE than 50% discount." Just how much more, we are not told. I wonder why?

Suppose it's a 60% discount. Somebody was smart enough to find a dumb buyer for these toxic assets. Cool. Rather than having a toxic asset on its books, the government now has a cool $4 mill.

Some sucker owns the properties. Who dat sucker? Why, dat sucker is none other than Terrible Herbst. They just saved (something on the order of) $6,000,000.

Can anyone say potential moral hazard here? Any reason NOT to give say a 5% "fee" to a player with enough ambition to put get this deal done. How about if the player is maybe the brother-in-law of the FDIC regulator?

It's the great American way.

3 for 2007; 25 for 2008; 13 so far for 2009

This New York Times article indicates the scope of bank failures in 2007 and 2008. Hold on to your hats. Looks like 2009 will be an even steeper ride.

The F.D.I.C. inherited the collection of loans and property after the failure of 25 banks in 2008, compared to just three in 2007. Thirteen more have failed this year, including four on Friday night, and no one doubts that more are on the way. The F.D.I.C., which insures bank deposits and ultimately has responsibility for liquidating failed banks, is selling hundreds of millions of dollars worth of loans through eBay-like auction sites.

"Through eBay-like auction sites?" Does this mean "on-line." Talk about virtual reality. More like virtual unreality.

A surprisingly low profile in the new administration's stated plans

At the invaluable Tom Dispatch web site, Steve Fraser examines the public response to the wall street "titans" in 1929 and again in 2009 (my emphasis added).

This was then:

After 1929, when the old order went down in flames, when it commanded no more credibility and legitimacy than a confidence game, there was an urgent cry to regulate both the malefactors and their rogue system. Indeed, new financial regulation was at the top of, and made up a hefty part of, Roosevelt's New Deal agenda during its first year. That included the Bank Holiday, the creation of the Federal Deposit Insurance Corporation, the passing of the Glass-Steagall Act, which separated commercial from investment banking (their prior cohabitation had been a prime incubator of financial hanky-panky during the Jazz Age of the previous decade), and the first Securities Act to monitor the stock exchange.

This is now:

One might have anticipated an even more robust response today, given the damage done not only to our domestic economy, but to the global one upon which any American economic recovery will rely to a very considerable degree. At the moment, however, financial regulation or re-regulation -- given the last 30 years of Washington's fiercely deregulatory policies -- seems to have a surprisingly low profile in the new administration's stated plans. Capping bonuses, pay scales, and stock options for the financial upper crust is all well and good and should happen promptly, but serious regulation and reform of the financial system must strike much deeper than that.

And for some reason (bipartisanship?), the Obama administration is "staying the course" on the corporate "bail-out." Never forget, Obama is joined at the hip to Bush on this. Obama spent political capital to help get the TARP plan approved. Who the hell is advising him? And just how much money did his campaign rake in from Wall Street?

Instead, the new administration is evidently locked into the bail-out state invented by its predecessors, the latest version of which, the creation of a government "bad bank" (whether called that or not) to buy up toxic securities from the private sector, commands increasing attention. A "bad bank" seems a strikingly lose-lose proposition: either we, the tax-paying public, buy or guarantee these securities at something approaching their grossly inflated, largely fictitious value, in which case we will be supporting this second gilded age's financial malfeasance for who knows how long, or the government's "bad bank" buys these shoddy assets at something close to their real value in which case major banks will remain in lock-down mode, if they survive at all. Worse yet, the administration's latest "bad bank" plan does not even compel rescued institutions to begin lending to anybody, which presumably is the whole point of this new financial welfare system.

And just how much of the stimulus bill is in the oh so productive voodoo trickle down economics of tax cuts?

Meet the new boss. Same as the old boss.

The three front war

From this Al-Jazeera report, the U.S. appears to have another war criminal president. No surprise to any serious student of American history.

The US has launched more than 30 missile attacks on Pakistani soil in recent months, ostensibly against al-Qaeda and Taliban-linked fighters.

More than 220 people were killed in the attacks, according to a tally of reports from Pakistani intelligence agents, district government officials and residents.

Pakistan has been angered by the raids, saying that innocent civilians have been killed and that Pakistani sovereignty has been infringed.

Meet the new boss, same as the old boss.

Trying to undo the recovery from the First Great Republican Depression

At the Sideshow, Avedon Carol notes that:

You have to understand that the conservatives aren't just trying to "undo the New Deal" - though of course they are - but ultimately to undo the recovery from the First Great Republican Depression by first preventing a recovery from their new one.

They seem to be getting plenty of help from the democratic congress and the democratic President of the United States too.

More than 10 years behind the times

In the fall of 1998, FAIR published an article by Janine Jackson entitled The Myth of the 'Crack Baby'. Recently the New York Times featured an article by Susan Okie entitled The Epidemic That Wasn't.

From Janine Jackson's 1998 article we are offered insights into how typical MSM reporting would cover the narrative:

Already obsessed with the use of the cocaine derivative crack among the urban poor, mainstream media used ... limited, qualified findings as grounds for an astonishing spree of sloppy, alarmist reporting and racial and economic scapegoating that still echoes today

...


"Crack baby" stories typically had an anecdotal focus and a veneer of sympathy for the "tiny victims," ... More urgency was reserved, though, for the unimaginable dangers these babies were supposedly destined to wreak on the world: The Washington Post (9/17/89) warned of "A Time Bomb in Cocaine Babies," while the St. Louis Post-Dispatch (9/18/90) declared flatly, "Disaster In Making: Crack Babies Start to Grow Up."

...

The emphasis may have varied, from pity for the children ("Crack Babies Born to Life of Suffering," USA Today, 6/8/89) to disgust for the mothers ("For Pregnant Addict, Crack Comes First," Washington Post, 12/18/89) to the unfathomable amount "their" problems might wind up costing "us" ("Crack's Tiniest, Costliest Victims," New York Times, 8/7/89). But overall, commercial media found the premise - a coming onslaught of affectless genetic deviants - utterly persuasive.

Compelling stories cast within the mold of a morality tale. Jackson notes (my emphasis added)

The premise, however, was false. The inadvisability of using cocaine during pregnancy is not disputed. But subsequent research on cocaine-exposed children found that many of the dangers mentioned in initial studies are simply not borne out.

... Health-care providers working with infants exposed to cocaine in utero found them indistinguishable from other children. Much medical research pointed to other factors - such as the lack of good prenatal care, use of alcohol and tobacco, and, simply enough, poverty - as more primary factors in poor fetal development among pregnant cocaine users than cocaine itself.

Proponents of a revised view included Dr. Ira Chasnoff, whose initial 1985 study launched much of the media juggernaut. By 1992, Chasnoff was saying, "poverty is the worst thing that can happen to a child," and expressing dismay at the press' misuse of medical research. "It's sexy," he suggested of the "crack baby" story (AP, 12/6/92). "It's interesting, it sells newspapers and it perpetuates the us-vs.-them idea."

Just who is the us in the "us-vs.-them idea" mentioned by Dr. Chasnoff?

From the 2009 New York Times story, we learn that

When the use of crack cocaine became a nationwide epidemic in the 1980s and ’90s, there were widespread fears that prenatal exposure to the drug would produce a generation of severely damaged children.

...[S]cientists say, the long-term effects of such exposure on children’s brain development and behavior appear relatively small.

...
Cocaine is undoubtedly bad for the fetus. But experts say its effects are less severe than those of alcohol and are comparable to those of tobacco — two legal substances that are used much more often by pregnant women, despite health warnings.

In the first half of NYT article, we are told that the morality of cocaine use is the issue

cocaine use in pregnancy has been treated as a moral issue rather than a health problem ... Pregnant women who use illegal drugs commonly lose custody of their children, and during the 1990s many were prosecuted and jailed

But later in the article the racial issues loom large:

Possession of crack cocaine, the form of the drug that was widely sold in inner-city, predominantly black neighborhoods, has long been punished with tougher sentences than possession of powdered cocaine, although both forms are identically metabolized by the body and have the same pharmacological effects.

... If [cocaine-exposed children] develop physical symptoms or behavioral problems, doctors or teachers are sometimes too quick to blame the drug exposure and miss the real cause, like illness or abuse.

“Society’s expectations of the children,” she said, “and reaction to the mothers are completely guided not by the toxicity, but by the social meaning” of the drug.

What exactly does the "social meaning" of the crack cocaine mean? My best guess is that it means white elites jump upon any and all opportunities to further marginalize, stigmatize, and demoralize poor blacks.

Teasing out the effects of cocaine exposure is complicated ... [because] ... almost all of the women in the studies who used cocaine while pregnant were also using other substances.

Moreover, most of the children in the studies are poor, and many have other risk factors known to affect cognitive development and behavior — inadequate health care, substandard schools, unstable family situations and exposure to high levels of lead.

Back in 1998, FAIR painted a much clearer picture of the inherent racism and how 60 minutes legitimatized

Such a sustained media assault was not without real world effects, of course. Years of accusatory coverage contributed to a shift to more punitively focused public policy, which was, in turn, welcomed by the press. In 1994, 60 Minutes aired a show (11/20/94) celebrating one such policy: a South Carolina law under which women who used cocaine while pregnant were arrested and jailed under child abuse statutes. "Cracking Down," the segment was called.

Fast forward to 1998: Despite an amicus curiae letter signed by 15 leading medical and social service organizations condemning the policy, the Supreme Court declines to hear an appeal in the convictions of two South Carolina women. Cornelia Whitner and Malissa Crawley, both mothers of healthy children, are serving prison terms for prenatally "abusing" them by using cocaine. And 60 Minutes announces plans to re-air its 1994 segment on the policy that sent them to jail.

... [O]f 23 prosecutions, 22 were of African-American women, and the one white woman was married to a black man.

In America, the perpetuation of racial divide (us-vs.-them) serves to deflect from class issues. As the lawyer who represented Whitner and Crawley notes:

"Many of the people who are actually working with the women and children were saying, 'These are poverty babies, and nobody wants to address that. So we call them crack babies.'"

In addition

[L]eading medical groups like the American Medical Association, the American Nurses Association, the American Academy of Pediatrics and the March of Dimes [join] in saying, "If you want to help children, don't arrest their mothers."

In an entirely different morality play, Chicago Tribune sports writer Bob Verdi writes some unmentionable truths:

Like lemmings, members of the broadcast and print media have piled on ...

We in the media are not here to make you think; we are here to tell you what to think.

Funding and arming an international terrorist organization

Could it reasonably be said that a nation which spends $28.5 billion to support an international terrorist organization and furthermore provides 95% of the armaments used by said international terrorist aids and abets the terrorism?

This is not a theoretical question.

The more we fight the so-called "War on Drugs", the more the drugs seem to be winning. Which is difficult to reconcile when you stop and consider that "the drugs" don't shoot back.