The Catskill Chronicle

 By Mort Malkin

The economy is recovering says the White House. The Dow Jones says the stock market is dancing around 3,000. Wall Street reports record corporate earnings. The luxury items at Tiffany, Nordstrom, and Nieman Marcus are leaping out of the cabinets at whatever prices. The too-big-to-fail banks that were bailed out – Goldman Sachs, Bank of America, JP Morgan Chase, Morgan Stanley, CitiGroup, Wells Fargo – are giving out great bonuses again.

But, a few (million) folks are unconvinced, among them the people who couldn’t pay their mortgages and had their homes foreclosed. Many of these houses were “underwater.” That is, the principal left on the mortgage was more than the value of the house on the real estate market. Many of those with underwater homes asked the banks to readjust their mortgage to reduce the principal and lower the interest rate. The “have a nice day” banks were willing to lower the interest a token amount, but wouldn’t budge an inch on the principal. Reducing the principal would have to be written into their balance sheets and, thus, entered as a profit loss. Worse, the Tea Party would call it “debt forgiveness,” a mortal sin.

In fact, the Federal Reserve recently issued a white paper, proposing just such debt reduction to set the real estate market on the road to recovery.

Let’s see how it all started. The banks, freed of the regulations of the Glass Steagall Act,  could enter more real estate at inflated values into their balance sheets, and thus increase their net worth. And so, they did. They had various confederates: mortgage brokers, loan originators, and sub prime sales people. Then, there were investment bankers who would: bundle together many hope-for-the-best mortgages, get the rating agencies to certify the packages as AAA, and sell them to investors. Along the way, all the players in the free-for-all game were entitled to their fee. After a few years, the bubble burst when: the public would no longer buy houses at inflated prices, when the rates of the escalator mortgages went into effect, when some people lost their jobs, and when some sustained costly medical conditions. So, the banks foreclosed, evicted the homeowners, and tried, but failed, to sell the houses at the original prices. Then, they placed the properties on the auction block. On average, they fetched less than half the principal remaining on the mortgage.

Why, you may ask, didn’t the banks reduce the principal on the mortgage to half and charge interest at the Fed’s prime lending rate for the homeowner. That, dear reader, would be too logical.

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Lack of logic is not limited to the domestic scene. In far away Afghanistan, a land-locked country with no navy that could attack New York or Boston, over a hundred thousand US and NATO troops with many helicopters, fighter jets, and pilotless drones have been trying to eliminate Al Qaeda and the Taliban insurgents for more than ten years. Al Qaeda, led by Osama bin Laden riding out on the back of a mule, left early; but the Taliban are still fighting on, especially in the Pashtun tribal areas of the southeast. The poets of the Gadfly Revelry & Research Society could have told the Pentagon that the problem is that the Taliban are insurgents fighting in their own native land. Insurgents are, by definition, just a step up from dissidents. The Taliban are just exercising their free speech rights with AK47s. They are trying to tell us that they don’t want any foreign forces occupying their country.

As to Al Qaeda, General James Jones, the President’s National Security Advisor at the time, said there were no more than 100 Al Qaeda left scattered around Afghanistan. The estimate became a challenge to the CIA that operates the drone assassination program. The CIA, after scouring the countryside with Predator drones, said that there were fewer than 50 Al Qaeda in Afghanistan. Al Qaeda has found greater hospitality, and nicer weather in Yemen, Somalia, Florida, and San Diego.

Osama bin Laden, himself, found it more pleasant in Abbottabad, Pakistan. The Navy Seals, after locating him there, went in to “take” him. Two helicopters flew 23 Navy Seals to bin Laden’s compound in a surprise raid. One of the helicopters crash landed, and the other landed across the street. Some surprise. The Seals found the bearded one on the third floor, unarmed and with one of his wives. They shot him anyway – twice to make sure. If the CIA were given the mission, they would have taken bin Laden alive, not taken him out. Just think what a trove of information we could have gained from a captured bin Laden.

With bin Laden dead and fed to the sharks, and the rest of Al Qaeda relocated in the Near East, why don’t we bring our troops home? That would again be too logical. Some few have insisted that we must stay to train the Afghan National Army so they can protect the country. The logicians ask, “Protect against whom?” As well, the historians relate how the Pashtun tribes, without outside training, have been able to drive out every superpower of the day – the Russians, the British, and Alexander the Great. If we really wanted to help the Afghans, we’d send in a few teams of surveyors to straighten out the jig-saw Durand Line that forms its border with Pakistan. We could also reduce the unemployment rate in that country by hiring some of their horsemen, reputed to be the best in the world, to train our rodeo stars and coach our equestrian team.

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There are many other examples of lack of logic at home and abroad – from not requiring the bailed-out banks to account for the taxpayer money that saved their skins to maintaining 737 military bases in foreign nations. But, this essay is coming up to 1,000 words. Another column.