Pay Bills or Eat?

There is a perception among those of us who are of retirement age, or past it, that we have to pay every bill we have even if it means going without prescribed medications or proper food. To say that this is a wrong or bad idea is not appropriate. Those of us who try our best to honor our commitments should be commended, not condemned.

HOWEVER, the LAW , that’s the Federal law, specifically Title 11 of the United States Code, provides for DEBT RELIEF. So, why don’t more people take advantage of this legal RIGHT? There are many reasons but most are rooted in a belief system that not paying obligations is immoral, unethical, something only shysters or "those kind of people" would do. Many of these same people, those of us who feel there is no way but to pay, have had no qualms, no hesitations, about utilizing many different sections of Title 26 of the US Code which provides TAX RELIEF.

We all take deductions when we file taxes, rather than paying the maximum tax that we could pay based on income. We use the standard deduction or we itemize - and we itemize everything possible: real estate taxes, mortgage interest, medical expenses including part of the cost of medical insurance, tax return preparation fees, costs of caring for a dependent - and on & on. Somewhere there is a disconnect in the two position/attitudes.

The Debt Relief is Bankruptcy Protection - Protection from Creditors. IT IS A RIGHT, NOT A PRIVILEGE. Unless you have committed fraud, or some other unsavory act you are cannot be denied the Right to Obtain a Fresh Start. That is what the law discusses: a "FRESH START". And that refers to a FRESH START from DEBT.

There is no shame in admitting that the $10,000 of credit card debt that has been being paid for years, never denting the balance owed, is too much to repay. Keep in mind, that while it’s counter-intuitive, the credit card companies will not make deals to accept less than 100% of what’s owed. The fact that gas is now $4.00/gallon, and that fresh fruit and vegetables are more expensive than the best steaks, and that medical costs go up almost daily it seems....

The shame of the current economic environment is that some of the lifelines that many people have relied upon have been eliminated or cut-back. Programs like food stamps, fuel assistance, community health care programs, and subsidized housing are all under-funded because of the recession here and the on-going financial crisis world-wide.

I can only suggest that if you are having your own personal economic meltdown you seek advice from a competent Bankruptcy attorney. Any attorney worth her/her "salt" (or pepper) will give you enough information that you will know what options are available to you. If you cannot find someone in your area, feel free to call my office or send me an e-mail and I can get you connected to the proper referral folks.

Author's Copyright by Richard I. Isacoff, Esq, November 2011

rii@isacofflaw.com

http://www.isacofflaw.com/

"Danger Will Rogers...Danger" *

Steven Pearlstein, a columnist for the Washington Post wrote about the "Global Economy Comes To The End Of Its String" and went on to explain, quite "readably" why it's happening. The column, in the 8/6/11 online edition, discusses the fact that we are cycling back to 2008 levels (maybe), because we never fixed the underlying problems with ours and the global economies. The only issue I would have with the characterization is that we are finding it increasingly difficult to separate our economy from the global economy.

As was written in the prior post here, the U.S. has been spending more than it's been making. We have relied on foreign countries, like China, to continue to buy our Treasury Bonds, which is just lending us money. That's what the whole "Debt-Ceiling" debate was all about. It took Congress 3 months to decide if we would be allowed by law to borrow more so we could keep operating our Country without a DEEP cutback in services, like Defense, Medicaid, Parks, EPA protections, Federal Aviation Admin., and on & on & on.

Brian Wolfman posted a short piece of the article on the Consumer Law & Policy Blog and asks at the end "So, what's the chance that will happen given what we've just seen in Congress?" Here is my response:

"You ask, somewhat rhetorically, about the chances for Congress to adopt policies like those Mr. Pearlstein outlined and accept his analysis of the "how we got here". If you know how to bring back from the un-living (on earth anyway) Sam Rayburn, Tip O'Neill, Dwight Eisenhower, Louis Brandeis, Earl Warren, Hugo Black, Ronald Reagan, and Gerald Ford, we might have a chance. As partisan as some of those folks were, they put the Country first when the chips were down (don't really know what that expression means but...).

The current Congress is so ideologically focused and unyielding in their world view, that they belong back to a time when the "world was flat". Common sense tells them that if you go to a beach and look out to the horizon, you can see that the world is flat. That was the prevailing common sense. Oh, and, of course, from Wasilla, AK you can see Russia (I tried with military issue binoculars, from the highest point in Wasilla, in March of 2010, on a clear day, and could NOT see the "Hammer and Sickle").

We are truly at a turning point for the Country and the world. The EU (European Union) is as divided as our Congress, so they will be no help. At least here, the big issue for BOTH Congressmen and Senators is GETTING RE-ELECTED in the same country. The pandering to lobbyists and ideologues must stop. The hard core Tea Partyists are at least true to their beliefs, but remember the flat world.

The future looks grim. Voters cast out the evil-doers in the mid-terms. The world economic crisis was only in part our fault. We allowed the most selfish politicians and "bankers" to run us into the ground. No regulation, no brakes, no-mind to the constitutional interpretations of the past, and a skilled manipulation of the concepts of a "free-market economy" ruled for 8 years. But, this coincided with Europe deciding to try getting along. No one hired a Cat Herder.

Maybe if we remember Peter Pan's plea that we all believe in Tinker Bell (metaphorically only) our economic system will survive. If it doesn't and we don't begin to rebound quickly, we are facing a future that we have fought 2 world wars, our own revolution, a civil war, and the "baby-boomer wars" for nothing.

*from the CBS Show -"Lost in Space" - fitting!

Author's Copyright by Richard I. Isacoff, Esq., August, 2011
rii@isacofflaw.com
http://www.isacofflaw.com

We Have Been Sent To The Minors

I work in the private practice of law dealing daily with the economic realities of average people who have average problems and with those who have extraordinary financial problems. Having had the responsibility for the investment of as much as $145M, I continue to pay attention to the financial markets on a daily basis. This posting is to try to explain what has happened in the lowering of the credit rating of the Country's "sovereign" debt (meaning money the Country itself has borrowed - think Treasury Bonds) from AAA to AA+. Just like in baseball, we have been sent down to the minors.

By now, the entire world, knows that the United States has lost some of its credit-worthiness. Standard and Poors, known better by "S&P", in its role as a debt rating agency (a company that determines what debt is safe for investment and what is risky and how risky). The fact that the other two major raters have not taken any action "against" the U.S.'s risk seems to be of no importance.

In the world of investments PERCEPTION IS REALITY. That's true in many areas of life but especially in this one

The downgrade was apparently caused not by economic factors but rather the dithering of the Congress in deciding to do anything about the debt-ceiling and deficit reduction. With the complete polarization of the 2 ½ parties currently "in charge", little was done to address the systemic problem of our growing debt and its root causes.

It's easy to state that the Obama administration did or didn't do this or that, or that Bush allowed deregulation to go too far (think SEC and securitization). But, in reality should that have affected the credit worthiness "rating" of the sovereign debt of the U.S.? Probably NOT.

The Congress, through a myriad of laws and regulations wanted/tried to rein-in the Rating Agencies and hold them accountable for the financial meltdown. Remember it was these same agencies that rated Mortgage Backed Securities as AAA paper. That they were/are paid by the "investment banks" who did the securities to sell bonds to make $$billions has escaped the review of the markets now in panic over our AA+ rating. Rather than this being an assault on the problem with our deficits and trade imbalance, it seems more like S&P trying to exert enough pressure to get Congress here, and Parliaments in the EU to back off assigning liability to Credit Rating Agencies.

S&P was the only agency to downgrade. S&P was the agency most involved in giving the "seal of approval" to the MBS and CMBS bonds. S&P stands to be the biggest target if liability is established for the incorrect/negligent/disregard for underwriting standards rating of those bonds. It's worth repeating that the securities firms securitizing the loans and selling them for huge profits paid the rating agencies large fees to rate the bonds.

Michael Shemi wrote an excellent column in the August 4, 2011 edition of American Banker's blog "BANK THINK" ( http://tinyurl.com/3s4tn7n ) where he discusses the moves to lessen the restraints and assignment of liability to and on the credit rating agencies. As he put it "Lastly, the continuing crises surrounding sovereign debts and national deficits from Greece to Portugal to the United States are affording rating agencies another opportunity to boost their own importance. By threatening the imminent downgrade of the ratings for these countries, the rating agencies keep their names in the news and constantly rattle the chains of issuers, regulators, and investors."

Of note is the matter of the probable divestiture of S&P by McGraw-Hill which owns it - "spin-off" because of S&P's enormous profitability. It needs publicity. It needs a crisis to show its importance and absolute need.

The U.S. economy has problems but also the capacity to overcome those issues if Congress can stop the "Texas steel cage death fight" over ideology". It's almost as if each political party and each faction thereof wants credit for causing the next recession. The rating agencies need to be held accountable - but so does Congress; and so do WE the people. We desparately need a coherent plan to reduce the deficit over the next decade by $4trillion and then another $10trillion in the decade following. Budget cuts? Social Security cuts? NO!! Tax reform - so rich folks pay a share commensurate with their annual income. Raise the age for Social Security benefits starting in "X" years - maybe from 62 (early)and 65/6 (regular-full) to 63 and 67/8 respectively.

If the WORLD saw us with a plan to eliminate the deficit totally in 20 years with a big push in the first 10, all would be well again.

Author's Copyright by Richard Isacoff, Esq, August 2011

rii@isacofflaw.com
http://www.isacofflaw.com

The Theory of Money - (Part 2 of March 7th Posting)

(From the March 7, 2011 posting for background)

[How much is GOLD worth? Or even more basic, why is gold worth anything? Why does the Pound Sterling or the Euro or the U.S. or Canadian Dollars have value? Only because "we" say so!

The above statement is an over-simplification of a complex, and seldom discussed matter of economics - THE THEORY OF MONEY. Think of this concept: Money, regardless of country, and so-called "precious metals", have value only because the people of the world say they do. In reality, what we call money is a short-hand and efficient method of barter. After all, we use money to get ("buy") something of value from someone else.]

(Now the new information)

If money is worth only what we agree it's worth, then we could declare all money worthless, right? NO! This is because, as mentioned in the March 7th posting, whatever we use to exchange goods and services, without literally trading the bushel of corn for a pair of shoes, or 5 bushels of wheat for one pig, is a shorthand method of keeping track. I want your shoes that you will trade for 1 bushel of corn. I have none but Sally has corn. I just have wheat. Sally will trade her corn for my wheat; I trade her my wheat for her corn and trade with you, giving you my (originally Sally's) corn for your shoes. Now each of the three of us has what we want. I have shoes, you have corn and Sally has wheat.

BUT what if I want your shoes; you want Sally's corn; Sally wants Pete's painting; Pete wants George's work as a plumber; and George wants my wheat. It will all work out but it would take a week just to move goods and perform services, when all I wanted was a pair of shoes. Money, a universally accepted product/commodity/service "stand-in" makes it all very simple. We agree that (1) unit of this thing called "money" will trade-for (is worth) 1/10th bushel of corn, and that (4) units are needed to trade for the shoes, and that one hour of plumbing time will "cost" (5) units, and so on. We have created money as we know it.

Now, just imagine trying to work out the trade value of every good and service we use in this country. How do we establish the price in these units? By agreement. Essentially, we give everything a trade-value of "X" units, just as is shown above. When we are not certain, we guess. If we are right, the trade is completed - 23 units for a set of 4 chairs. If we are wrong, the chairs will be 30 units, or maybe only 21 units. IT'S ALL MADE UP! Until the majority of unit users say NO to the exchange, everything works fine.

Just keep in mind that MONEY IS WORTH WHAT ALL USERS OF THAT KIND OF MONEY AGREE TO. No More, No Less

As we look at financial markets, as we hear about the "strong Yen" or the "weak dollar" or even issues of inflation the explanation gets much more complicated.

Be patient: we will get to it a little at a time!

Author's Copyright by Richard I Isacoff, Esq, March 2011

rii@isacofflaw.com

http://www.isacofflw.com/

Foreclosures Down? Not Really!

RealtyTrac, the company that tracks foreclosures (state by state) and gives national figures, reports that foreclosures, meaning homeowners getting a foreclosure notice, is at a 26 month low - ONLY 225,101, down nearly 14% (http://www.realtytrac.com/home/).
Reading and digesting the information further one discovers that the reduction is not due to fewer defaults by borrowers, or lenders/servicers having less work , but rather it is due to IMPROPER FORECLOSURE PROCEDURES.

For months it has been known that some of the largest servicers have been using so-called "robo-signers", unauthorized personnel signing assignments of mortgages and notes, and foreclosure documents. Also, as the suit by States' AGs shows, in their 27 page report, what has to be done to fix the problem. While the servicers have rebelled and are using all tools available to stop regulations, even BofA, the biggest, has made modest changes - like giving returning service members modifications and even PRINCIPAL REDUCTIONS.

The battle is getting so fierce that Sen. Richard Shelby (R), the senior Republican on the Senate Banking Committee has said that the report is a "regulatory shakedown" being conducted to "advance the administration's political agenda" (American Banker 3/9/11 )

Taking the battle over the "mortgage crisis" even further is a letter, being circulated by House Republicans to Treas. Sec'y Timothy Geithner, that calls into questions most of the report's/settlement proposal's recommendations (http://tinyurl.com/4byflk4).

So what is the "TRUTH"? Is the rate of foreclosures falling? Yes, in so far as the "foreclosers" have had to stop or be sued by all 50 states (again) and won't start again in earnerst until they get the paperwork and process straightened out. But, the rate of defaults and the "right to foreclose" have continued to climb. If RealtyTrac counted all of the refilings for corrected documentation, there would have been an increase of 30%!

The future looks bright for auctioneers, dim for homeowners with the current climate.

(Follow the link to RealtyTrac's 3 minute video report on foreclosure activity: http://www.youtube.com/watch?v=wqsyJNy9ppI

Author's Copyright by Richard I. Isacoff, Esq, March 2011
rii@isacofflaw.com
http://www.isacofflaw.com/

The Greatest Depression? Ask Rep. Neugebauer (R-TX)

Rep Randy Neugebauer, Chairman, House Financial Services Oversight Subcommittee, said it is time for the government to admit its foreclosure prevention efforts are a failure and should be shut down. The Texas Republican said such programs are counterproductive and are preventing the housing market from bottoming out, which is necessary before recovery can begin. (1/24/2011 from the American Banker)

Now, there is a real solution to the foreclosure crisis! Bite the bullet - displace hundreds of thousands of homeowners, let the inventory of bank-owned properties (OREO) sky-rocket, let the housing market drop bottomless and that will allow us to have an economic recovery. The sad part about Rep. Neugebauer's assertion is that he may be right in the long-term, but at what IMMEDIATE & CURRENT COST!

The program is not working - no news there. Why? Because the government regulators and policy makers do not want to to tackle the "investment banks" and the "investors" in mortgage-backed securities ("MBS")to tell them they WILL modify loans. At this time, no one can order a lender, mortgage servicer, investor, Pool Trustee, or any one else that it/she/he MUST modify a loan.

Everything is voluntary and the decision makers are in a position that they cannot lose. even if the market "bottoms out" as the Rep. from TX suggests it should. The Sponsors of the MBSs and the investment banks that put the packages together and sold them have already been paid or are so high up the MBS hierarchy of payees, that unless the value of every mortgage in the pool of mortgages becomes utterly worthless (no value at all to the houses securing the mortgages which comprise the MBS), THEY WILL GET PAID.

From an "economic" point of view (see the 1/13/11 posting), the Rep. makes sense. From a financial point of view it does not. From a human point of view it would be "The Nightmare from Wall Street". Remember "economics" is the study of an economy which is merely a system to deal with supply and demand. The concepts are simple but the implications are not. This is a case where the theory is great and accurate in its long-term view. But, getting from here (where/when we need modifications and for the Government to help all of us struggle through the mess) to there (where the market, the economy can correct itself) is a 20 year span.

Perhaps the Rep. has not taken into account the mass disruption of the pensions which hold funds that hold mortgage-backed securities. Or maybe he has forgotten that if there is no confidence in the value of the MBS, which is really set by its stability and ability to pay the return it's promised, the value will drop to $0 or something close to it. In reality, the houses that would be lost in foreclosure will retain significant value, even if that is only 20% or 30% of the mortgage balance. When the next generation comes along, it will be able to buy a vacant house for 40 cents on the dollar from what was owed on the mortgage. What will it cost the current homeowners on a nationwide basis?

Factor in those who lose houses to foreclosure and then the rest of the homeowners, from low-income to upper-middle class income, who manage to keep a house now worth half (1/2) of what's owed, and you have a "financial" (not economic") crisis. The economy will have way to much supply, and literally no demand for years.

Recession? Nah, the Greatest Depression

Author's Copyright by Richard I. Isacoff, Esq, January, 2011

rii@isacofflaw.com

http://www.isacofflaw.com/

Better Now Or A Year Ago?

Now that all of the drama of the Goldman Sachs vs Congress (actually Sen. Carl Levin) is over, what did it all mean. More importantly, WHO CARES? (well, I actually do but it's my job to care).

The reality is that regardless of who caused the financial crisis most of us just want to know when it will end and how will we survive until it does. Will knowing what a "Synthetic Derivative" help? NO, and it's not something you add to your cars oil or take out of it for that matter! If the crisis is over, if we have turned the corner on the recession, if the economy is improving, why is the unemployment rate still at record or near record levels, after adjusting for those who have fallen off of the rolls because benefits ran out, and deducting the Census workers?

The answer is easy, well at least explainable, or at a minimum, less confusing than Synthetic Derivatives. The term "Recession" is a technical economic word that rarely intersects everyday life. It deals with the number of consecutive calendar quarters that the "gross domestic product' declines. And when most TV types discuss the economy getting better they are really talking about the stock market, which a world unto itself.

For real people - are you better or worse off financially than you were 1 year ago? That's far from scientific and can be misleading, but it isn't a bad way to gauge the problem.

Foreclosures are still way up. April's figures showed fewer foreclosure sales but more actual cases where the lender has actually taken possession of the properties it foreclosed against months ago. And, the number of borrowers in default is not leveling yet. And the modification programs are still not really working. And people have so little left from their paychecks that they cannot afford to file bankruptcy using a lawyer, or even a document preparer (which is worse than filing themselves anyway).

In my office, we are taking payments for months from clients who want the expertise of a lawyer but can only pay $50 or $100 per month. The extra part-time job is gone; the overtime hours aren't available. Money is tight.

HOWEVER, at this point it doesn't appear that "the economy" will get any worse. This may not help every individual but it is an indication that we may have bottomed. How long we stay down is any one's guess.

Synthetic Derivatives? Think of a fantasy sports league based on a fantasy sports league, based on a real sports league! - (Next time I will try to explain in fewer than 5000 words)

Author's Copyright by Richard I. Isacoff, Esq, May 2010
rii@isacofflaw.com
http://www.isacofflaw.com/

The Real Toxic Assets - Derivatives (whatever they are)

This posting will begin a 3 part series, to be finished by week's end, where we try to make understandable the un-understandable. Obviously the topic continues to be the "Stimulus Package", TARP, TALF, and the latest entry into the lexicon of acronyms, the PPIFs. PPIF stands for "Public Private Investment Funds". These are going to be the repository of those evil and lurking "Toxic Assets".

(cartoon from The New York Times)

A short recap: - mortgages were sold that had the interest rate adjust ("ARMs"), on both prime and sub-prime borrowers, to the point that some homeowners could not pay the monthly payment. These, along with perfectly fine loans were then bundled together in $500,000,000 or larger pools, and sold to Wall Street firms which made them into saleable securities akin to a bond. They were then resold as investment quality bonds, in smaller pieces, to investors all over the Country and the world. After all, what could be safer than an investment, paying interest, that was backed by Home Mortgages. Everything was fine until the adjustments started to occur and delinquencies looked as if they would be greater than expected. The investments, Mortgage Backed Securities, "MBS", were no longer worth as much as everyone thought they were because of the fear of more defaults and foreclosures, so panic selling began, until no one would buy any of these MBSs. Because no one knew the exact value, IT WAS DECIDED, that the value would be ZERO, or something close to it and they became "Toxic Assets". (RECAP OVER)

The assets were no more toxic then than they were at the start. In reality, the true asset was the underlying collateral - home mortgages. How many would go to foreclosure and how much would be recovered was unknown, but there are a lot of percentages between 0% and 100% - none were used!! There were 2 hidden issues: 1. With the mortgages being bundled as MBSs and sold as bonds to investors (earlier posts please) no bank or lender or any one who sold them was at risk. The investors might lose some money, like they might on any corporate bond or a mutual fund, but the lenders were home free. 2. A little understood evil was waiting to steal the souls of all who succumbed to good interest rates - DERIVATIVES.

What is a "Derivative"? Simply put - a BET, a gamble that something will happen based on something else; like during the World Series, betting not on which team will win or lose but whether the score of both teams will be higher or lower than the number of strokes Tiger Woods takes in the first 3 holes of his current tournament. THIS STUFF REALLY HAPPENS!!! Here, it was a bet that mortgages would default in record numbers. It seemed like a safe bet to take, and had been for the past 50 years; mortgages had a more or less constant and predictable default/foreclosure rate.

Let's get an example that most of us understand more easily - LIFE INSURANCE. When you buy a life insurance policy, you are betting an insurance company that you will die before you have paid more in premiums than the policy will pay to your beneficiaries. The Insurance Company takes the BET, because they know that on average, very few policy holders dies before either paying in more than the death benefit, or simply let the policy lapse after many years of paying. The insurance company, having hundreds of thousands,or millions of other people buying and dying, have sophisticated mathematicians (actuaries they are called) who prepare statistics on the probability of someone dying.

For example, if you are healthy and 30 years old, and do not race cars, and want to buy a $25,000 policy, the company will say "fine" and charge you a modest monthly premium. They can do this because they have statistical proof that very few 30 year old healthy people die. If you are 70, the chances of death before paying a lot of premiums is far greater, so the payments are much higher.

REGARDLESS OF THE SITUATION, YOU ARE BETTING THE COMPANY YOU WILL DIE WHILE YOU ARE INSURED AND BEFORE YOU HAVE PAID A FORTUNE, AND THEY ARE BETTING THAT YOU WON'T. That is gambling/betting/buying chances... The company can do this because they sell hundreds of thousands of policies and the statistics prove them right enough of the time. Basically, you and hundreds of thousands of others pay premiums, and the Insurance Company pays relatively few claims. They get to keep the profit!

To be certain that the Company has guessed correctly, it will bet another and bigger insurance company to bet that the insurer might be wrong. The bigger company which has even more statistics takes the bet and collects easy money. It has bought a derivative - a bet not on the life of the insured, but a side bet on whether the first company will have to pay the claim. This second bet is DERIVED from the first bet -the insurance policy itself. It is equivalent to the bet on Tiger's golf game.

What would happen if a disease struck all of the 30-40 year olds and they died, leaving the older people only - the people who have less time to live (and pay premiums according to the math guys)? Easy - the company would not be able to pay all of the claims. The bigger company which had to pay the smaller company who issued the insurance policies might default. Both companies might go bankrupt. So, the bigger company bets with even bigger company etc. What happens is that there might be 7 bets that the 30-40 year olds will live long. If they don't, 7 companies have to pay and 7 companies might file bankruptcy.

Were any of the assumptions wrong? Yes and no. It was a first time event, all those young premium payers dying, but they did die. Would that make all policies bad no. It does point out that betting that a mortgage will go bad (OKAY CALL IT INSURING AGAINST IT GOING BAD) or any other such bet is fraught with potential disastrous problems. The biggest of these is the fact that there could be 5,6,7 or 100 bets on that 30 year old's life.

These DERIVATIVES, these side bets, are some of the main issues that "broke" A.I.G.

What happened in the financial markets that have left us with trillions in debt is next in this 3 part series.

Author's Copyright by Richard I. Isacoff, Esq., March 2009

rii@isacofflaw.com

http://www.isacofflaw.com/

Lessons Not Learned

The lessons our financial leaders should have learned from the "mortgage crisis" but did not, show how slow we are as an economic structure to react by anticipatory behavior. It does matter whether the financial markets overheated because of a giant Ponzi scheme hundreds of times the size of Madoff's, unknowingly and unwittingly perpetrated by its very victims, or due to a lack of regulation, or having as a cause the unbridled greed of the now oft ill thought of "Wallstreeters". Of course, one could also point to the failure of the economists to predict and discern the emerging pattern which ended in an implosion in the world of imaginary numbers - not the type to which mathematicians refer, but to the type hedge fund managers, speculative investors, commodities traders, bankers needing to satisfy stockholders, and just every day people with 401k plans, used as their calculus.

The concern we should all have is not only to identify when the recession began and when the regulators should have stepped-in, but rather how to see the next "black hole" which will threaten the fabric of our financial world. We have turned our telescopes on the past; we should also look at the present to see the future. Easy mortgages were the symptom of the securitization flu. The effect of the burst of mortgage-backed securities and credit default swaps et al has been a shut-down of credit: that will be the killer.

As the Wall Street Journal pointed out, the next credit crunch will be credit cards and similar smaller, but just as widely used lines of credit like over-draft lines, HELOCS (home equity lines), the ubiquitous 90 day note, etc. These means of keeping consumers and small businesses running when cash is tight, are being shut down. Jobs are being lost and housing defaults are rising which are causing more lines to be closed or limited as a pre-emptive strike against larger losses. Yet there is no regulatory concern about there being no credit available to "just ordinary people" and "just ordinary small business".

Understandably, the emphasis is on saving the patient - the hell with a few limbs: perhaps a more cogent analogy however would be that the sacrifice of the few to save the many is okay, not necessary but OKAY. It's great if you are not one of the few. The "few" here are consumers - both businesses and individuals. If there is no credit, and jobs are being lost, people will horde. If there is hoarding, small businesses will fail, which will cause larger businesses to fail...

The same Banks that are taking billions to "stimulate" the economy are limiting credit to people and small businesses. In fact, they are withdrawing credit and calling loans, reminiscent of the late 80s & early 90s. Further, interest rates are sky-rocketing creating spreads that loan sharks would pay ½ of their "vig" to get. Borrow from the Fed/Treasury at 0% or maybe 0% plus 25 basis points and lend it out at prime plus 18.99%. Default rates are still up into the 30% range. Worse is that people will use every last dollar of credit, creating huge defaults, which the industry can predict but "Who cares? We'll just securitize it and sell 'em"

[NOTE: The following link will bring the reader to Wharton School of Business' website where a recap of Federal Reserve Chairman Ben Bernecke's recent speech is contained] http://knowledgetoday.wharton.upenn.edu/2009/03/changing-the-rules-.html