Jefferson’s nightmare – American children wake up homeless.

Thomas Jefferson said in 1802, “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.”

And here we are. Hedge Funds are becoming the new, the faceless: Land Lords.

Banks bet that a carpenter, for example, cannot pay on a $350,000 dollar mortgage when the building boom was halted after they, the banks, cut the credit. That is OK for the bank is made whole by loan failure insurance called a CDS or Credit Default Swap. It is called that confusing name ‘swap’ because this insurance cannot be called ‘insurance’, because insurance is regulated. Perhaps the bank gets paid a premium when the carpenter is 90 days late, or perhaps when the carpenter and his family are evicted. The CDS world is not regulated. Anything goes. So if the the CDS premium only pays the bank a hundred grand, that is OK, the bank takes out as many CDSs as it likes, say 40, and gets a big payoff when the carpenter moves out. The CDS world is still unregulated today. Confusing? It is meant to be.

But so sad, there is no one to buy the house at $350,000, or even $200,000. No Problem, the bank has made its money already and did not have to wait for the pesky loan to mature. It now sells the house to a hedge fund for thirty cents on the dollar and voila. The bank is done. No maintenance problems. Next?

I have told this tale simply, for actually there are likely three banks involved, the note holder, the ‘investor’, and the servicer. The servicer is the bank that collects the money every month. The ‘investor’ may not be a bank at all, perhaps the bank gets a pension fund or municipality to put up the money. And you might be right if you have suspicions here…. sometimes the ‘investors’ do not get paid back when the loan fails, hey, I said this was unregulated. But the servicer has made a fine profit.

But wait. Isn’t that funny language? Is ‘servicer’ farm speak? Who is getting serviced?
Well it seems like just about everybody but the servicer is getting serviced. It is unregulated. Foreclosure laws vary from state to state. Bankruptcy laws are constitutionally mandated to be the same everywhere… but not foreclosure. Interesting huh? Anyhow, investors may lose. The house-holding families lose. The neighbors lose. The communities lose. And if small businesses used their houses for collateral as almost all did, then the job environment loses because the businesses have negative collateral.
Also the local governments lose, as taxable properties fall in value, cutting revenue requiring more lay offs. This is called a vicious cycle. But some bankers may get bonuses, and thus can play their part in the costly politics is money game as it selects who ‘represents’ and protects us.

Thomas Jefferson long ago saw America as the land of the yeoman farmer; the independent spirit informed by this beautiful land and concerned with the welfare of his neighbors. For he had seen the White House in Washington D.C. burned, in his lifetime, and had seen the boot of imperial oppression and its effects. Jefferson’s America was composed mostly of farmers who did not need explanation that when a bull mounts a cow in order to make a calf it is called ‘servicing’. And conceptually at least, a bull mounting a cow is so much easier than mounting a hard drive today. How times have changed. And how that fear of Jefferson’s, that American children wake up homeless has come true.

And Jefferson’s nightmare is just in the first act. Who will buy the houses from the hedge funds?

Liberty

The New Colossus

Not like the brazen giant of Greek fame
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame,
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore,
Send these, the homeless, tempest-tossed to me,
I lift my lamp beside the golden door!”

– Emma Lazarus
New York City, 1883
(Inscribed on the Statue of Liberty)

July 4th 1789, The First Act

“Looking back we can recall that the very first act of the first Congress was a tariff, signed, sealed and delivered by George Washington, July 4, 1789. The great majority of that first Congress were farmers.  They lived close to the soil and they understood the physical economy.  No less than five Founding Fathers became presidents, while the Tariff of 1789 was anchored in the statue books.

ANY CHARACTER HERE

“George Washington spoke for the free people he led.  Their safety and interests required the nation to promote the manufacturing they needed for self-sufficiency, otherwise they would surrender their independence and sovereignty.   The suggestion that foreigners could provide military supplies was a reflection on the mental acuity of those holding such an opinion, according to Washington.

“John Adams, Thomas Jefferson, James Madison, James Monroe, none found a bit of dissatisfaction with protection.  Indeed, Andrew Jackson, Abraham Lincoln and presidents down the line to Theodore Roosevelt and William Howard Taft agreed….”

ANY CHARACTER HERE

__ Charles Walter wrote this in 2003 in his introduction to his analysis of money, markets, banks and prosperity in America in his book:  “Unforgiven…. the American Economic system Sold for debt and war”.

ANY CHARACTER HERE

I believe what America was then, would be called an “emerging market” today.

ANY CHARACTER HERE

Imagine for a quick minute, if we charged a tariff on every gallon of oil imported onto this land of the United States, or for any oil used by our military equal to the value that is lost by its use: carbon injection, pollution, smog, spills, wars, accidents.

ANY CHARACTER HERE

While I had the good fortune to meet Charles Walter in 2008, about a year before his passing, I was tremendously impressed with his depth of understanding of the triad of economics, how money works, and prosperity.   You will note that in academia  Economics  and Finance and Small Business are separate majors.    It is just recently that I have had the chance to delve into his book: Unforgiven.   Charles Walter was the publisher and editor of Acres magazine,  www.acresusa.com   a publication concerned from the very early years with organic farming.

He was known for both his work in economics and agricultural economics, which as an academic may share with you, usually have their offices at opposite ends of the campus.

ANY CHARACTER HERE

Charles, like Thomas Jefferson and some of the Founders leaned toward the Physiocratic way of thinking.  It was a French creation that honored the production from the land and was good in that realm.   The French version was flawed in some other aspects, namely that they did not value manufacturing.  Some opine today that Capitalism too has its flaws.    Adam Smith published his Wealth of Nations in 1776, which was after the revolutionaries had their tea party, and struck out to remove their colonial shackles, which, by the way were economic.

What relation do you think tariffs have with self-sufficiency, and do you think self-sufficiency  is important?