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Email L. Henry Platt, Jr.
  Henry Platt

CAUSE OF DISASTER

Beginning in the mid-1960's bureaucrats began to seek to understand why some people destroy their own homes. {Remember Philadelphia, Pennsylvania, 1965.} Sociologists and statisticians observed that property owners took better care of their homes than tenants. Some of these professionals began to suggest that a solution to this problem might be to increase the proportion of home owners.

In the mid-1980's I received a solicitation to join others to open a bank in Harlem to help people who did not qualify for mortgages from traditional banks to buy their own homes. I knew from experience that this would not work, but had I had sufficient {charity} money available, I might have joined the experiment. Other defacto philanthropists forged forward and opened the bank.

Prudent banking practices require a down payment of 20% and sufficient income of the new owner to meet the ongoing costs: mortgage payments, taxes, insurance, utilities, repairs, maintenance, basic living expenses, etc. {And I suggest a 10% cushion of savings for the unforeseen e.g. auto repair, medicine, etc.}

Politicians saw this charitable undertaking as an opportunity to expand government without direct taxation. A new law was drafted and passed: "The Neighborhood Reinvestment Act" This Act requires all banks to invest a defined amount of their funds in local residential mortgages. By the early 1990's the previously cited charitable bank had been dissolved in insolvency due to non-performing assets {mortgages}. but in Chicago young a politico/community organizer was taking up the cause. "Power to the People!" With the help of Attorney General Janet Reno. Barack Obama persuaded banks to essentially ignore prudent banking practices such that a mark could be conned into "buying" a house for $100K with $110K mortgage at 10.5% and no income documentation.

Fast forward to July, 2008. The banks in Chicago were ready to close their doors, but Congress saved {postponed} the day of reckoning by forcing Fannie Mae and Freddy Mac to buy all of these worthless mortgages. Then Raines came for seventy-five million, and he washed these worthless mortgages, packaged them up as mortgage backed securities with an AA rating at 10%. Then he sold them to uninformed Europeans and domestic pension funds.

Now it is October 2010, and the citizens of the United States will soon choose the next Congress and one third of the Senate. I pray that qualified citizens vote wisely.


 
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© L. Henry Platt, Jr.