Nevertheless, cleaning up the securitized mortgage mess is a necessary first step.

Step 1 – STOP THE BAILOUTS and FIX THE BANKS
- Solve the loan problem.
- Solve the derivative problem.
- Reassemble whole loan mortgages

The U.S. economy is shrinking fast, because businesses cannot get loans that they need to operate normally. Banks and lenders already own $ billions in bad loans, and they are afraid to make new loans. The government gave $ billions in bailout money for banks to start lending, but banks hoard the money to save themselves.

Our financial system became untrustworthy, because it mixed $ billions in bad loans in with the good loans. Now, banks do not trust any of the loans, and the entire credit market stopped working.

The U.S. economy will continue to shrink until we untangle the loans. Once the bad loans are isolated, they can be fixed one at a time. Then trust will be restored. Credit will flow, and the economy will grow.

So far, our government is spending $ trillions on bailouts and pork projects, out of ignorance and political ideology. The real solution is much less expensive than that.

The USA has fixed this problem before, and it is not hard to fix again. This is how:

A) Start with the Resolution Trust Corporation (RTC), which the federal government setup to solve a Savings and Loan problem in the 1980s.

B) RTC buys up securitized mortgages and derivatives to reassemble whole mortgage loans.
1. “Securitized mortgages” are home loans that have been bundled into large groups and sold to investors. A group of about 4,000 mortgages can be “securitized” and sold just like a stock or bond. Investors like to buy groups of mortgages because they receive all the monthly house payments.
2. Some groups of securitized mortgages were subdivided into smaller pieces, called “derivatives.” However, both of the fancy names refer to mortgage loans.
3. The problem is that many bad loans (with no payments) got mixed in with good loans. That turned the all the securitized mortgages into bad investments, which are ruining our banks. It is a huge problem, and the government has to fix it, before our economy will recover.
4. Total securitized mortgage and derivative market is estimated at $1.3 Trillion by a Professor of Economics at Ohio State University. (Also see the graph from Deutsche Bank at “The Death of Securitized Mortgages” http://www.nake...-mortgages.html )
5. Government should buy up securitized mortgages and derivatives at the lowest market price, which is set via a reverse auction. (Google on “reverse auction”.)
6. Squatters, who sit on their mortgage derivatives, in order to extort big $ from the rest of the system, can be forced to sell. (Law is analogous to eminent domain, or sales forced on cybersquatters that registered the domain names of well-established companies.)
7. Government pays mortgage derivative squatters at market price set by previous reverse auctions, perhaps with a penalty to the squatters.
8. Sellers give up all rights. No new law there.
9. Banks, investors, and insurers now have cash instead of questionable mortgage loans and derivatives. So, the banking system is healthy with cash to lend.
10. Credit will flow, and the economy will grow.

C) Government reassembles whole loans from securitized mortgage components and derivatives.

D) Government sorts the newly reassembled whole loans (mortgages) into groups according to risk/quality.
1. Government uses traditional mortgage experts and guidelines to sort the home loans into quality groups, for example, a high quality group would include homeowners with 20% (or more) equity in their house at today’s market price; and house payments that are 25% (or less) of homeowners monthly income.

E) Government (RTC) sells the reassembled whole loans to traditional mortgage banks.
1. This solves the problem of renegotiating home loans with homeowners. Read on.
2. Law must be changed so that reassembled whole loan mortgages cannot be securitized into derivatives, again.
3. An important purpose is to reconnect each homeowner with his lender, and vice versa.
4. It eliminates incentive for mortgage lenders to make predatory and junk loans. If the loan fails, the lender is stuck with a bad loan.
5. Government recovers much of the $1.3 Trillion purchase cost, because government auctions off the reassembled mortgages.
6. The lower quality, more risky mortgages would fetch a lower price at auction.
7. Mortgage companies, that buy the risky loans, will have more room to negotiate with the homeowners.
8. Some homeowner negotiations will not succeed. Those homeowners will move into affordable rentals. (The government does not owe everyone a free house.)
9. Other renters would like to buy those empty homes at reduced market prices.
10. If the government gets stuck with some homes, the government could profit by selling the homes when the housing market recovers.

F) Insurers like AIG may be reorganized through bankruptcy.
1. Securitized mortgage pools never made business sense, unless they were protected by various insurance schemes.
2. Those insurance schemes always were a scam.
3. Insurance only works when most of the insured assets are never hit with a disaster. That is why flood insurance does not work very well. A major flood ruins all the buildings in a large area, all at the same time. So, the insurance company goes broke, and people that bought the insurance are not protected. That is the problem with securitized mortgage insurance. In an economic downturn, the “disaster” hits all the houses at the same time. Securitized mortgage insurance was doomed to fail, and the insurance companies went broke in 2009.
4. Companies that ran the insurance scam may have to go through bankruptcy.
5. Never ending government bailouts for insurers like AIG are just throwing good money after bad. So, stop the bailouts.

This plan is inexpensive, tried and true. It leaves the banks healthy, with cash to lend. It restores trust in the credit markets, so loans will be made. It reassembles mortgage derivatives into whole loans, and restarts traditional mortgage lending. People can get loans to buy homes. Credit will flow, and the economy will grow.*

Step 2 – STOP THE PORK and START THE RECOVERY

*The economy will grow if President Obama’s massive tax, borrow, and spending plans can be stopped, before he creates another Great Depression. Presidents Hoover and Roosevelt already tried to tax, borrow and spend their way out of a recession in the 1930s. Instead, they created the Great Depression, which lasted 12 years. Straight as he goes, President Obama is doing it, again. Nevertheless, cleaning up the securitized mortgage mess is a necessary first step.

If President Obama announced Steps 1 and 2, today, the stock market would go up within hours. Investors love a real business plan, instead of a political pork plan. Millions of people will be wealthier, feel wealthier, and have more money to spend. That will jump start the economic recovery within days.

Still raising decent amount of capital money without serious difficulties.

Probably because we don’ t need to pay our top mngt staff 150K + equity

Τελευταία όλοι μας ακούσαμε, διαβάσαμε και εν τέλει μάθαμε για την παγκόσμια οικονομική κρίση που μαστίζει την Αμερική αλλα και τον υπόλο…

Besides that, it seems in Europe they are not panicking that much about this crisis…

Our lexicon of business activities is being expanded daily, thanks to the “wonder boys” on Wall Street. We are learning about derivatives, collateralized debt obligations, credit default swaps, recapitalization, puts, short selling and so on. We are gaining a new vocabulary from the recent meltdown of the financial system and expected slowdown of the real economy worldwide.

Where did this debacle begin? Well, it began in the center of human community’s banking and investment houses in the financial district of NYC. Supposedly, the “brightest and best” among us go to Wall Street, know what they are doing and do the right thing. Unfortunately, such assumptions turn out to be colossal mistakes.

How did this calamity occur and why is the human family in such dire economic straits? It appears that grotesque greed and a culture of corruption have come to dominate significant operating systems of the global political economy.

Powerful people in high offices within huge business institutions with access to great wealth are recklessly and deleteriously manipulating the unbridled expansion of the global economy in the small, finite planetary home God blesses us to inhabit.

Self-proclaimed Masters of the Universe have surreptitiously “manufactured” a sub prime “asset bubble” and perversely fostered its uneconomic growth within the world economy. Not unexpectedly, this asset bubble did what bubbles do. The sub prime bubble burst and made a mess. Global credit markets have frozen, stock prices are tumbling and the value of the dollar is gyrating.

Evidently organizers, managers and whiz kids overseeing the global economy, and the unraveling {ie, deleveraging} of the worldwide sub prime swindle, are running the artificially designed financial system of the global economy as a pyramid scheme. This is to say that the international financial system is being operated so that most of the wealth funneled pyramidally into the hands of a small minority of people at the top of the world economy where this wealth is accumulated and consolidated. Note that thirty percent of annual corporate profits end up in the accounts of a tiny number of people. At the same time, the vast majority of people on Earth, near the bottom of the global economic pyramid, are left with very little wealth. Does the economy of the family of humanity exist primarily to provide wealth to the already stupendously wealthy? The “bankstas” among us evidently think so.

In the 1980s, this extremely inequitable method of distributing wealth and arranging business activities was called a “trickle down” economy. We have been repeatedly told how this ‘rational’ economic scheme is good because it “raises all ships.” And yet, from my limited scope of observation, the billion people living on resources valued at less than one dollar per day and the additional 2.7 billion people being sustained on two dollars per day of resources now appear to be stuck in squalid conditions. The ’ships’ carrying these billions of less fortunate people {ie, more people than lived on Earth in the year of my birth} do not appear to be lifting them out of poverty.

Steven Earl Salmony
AWAREness Campaign on The Human Population, established 2001
http://sustaina...t.org/index.php

“Little noise seems to be coming from Europe though”

This is a general theme. Whether the news is about something good, something new, something bad, or about the economic crisis, “little noise” ever seems to come out of Europe in this sector. Europe is a quiet, depressed little continent whose inhabitants can barely understand each other – we tend to be quiet!

Thos small, medium-succesfull companies will probably survice this “crisis” without much trouble.

The VC’s should just kiss good-by to the returns of the funds invested in recent times, meaning 24 – 36 months prior to the bubble bursting. In addition this burst is much worse than anyone before. This is based on the debt market exploding rather than equities.

While I agree as an entrepreneur and CEO that the time during a recession is great to build a company as long as you have the capital, the return of 24 months prior to stock market crash investments in Series A’s will be lost and washed out.

Fellow entrepreneurs and CEO’s button down your shirts and keep executing.
Alexander Straub (Straub Ventures) http://www.straubventures.com