One Wrong Move and the Bank Gets It !

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And the Bank Gets It !

Remember when GW Bush told us (ad nauseum) how he would “listen to the generals on the ground,” in formulating his actions in Iraq? Remember how well all that worked?

Fast forward, new administration, same kind of misplaced trust.

President Obama is repeating Bush's mistake by delegating critical tasks to the wrong people. I'm not taling about Iraq here, but closer to home -- the bank bailout. The "generals" Barack Obama says he's listening to in this case are Larry Summers and Treasury Secretary Timothy Geither.

And therein we find the seeds of the same dynamics that enabled Bush to fight the wrong war, at the wrong time, in the wrong country with the wrong tactics. Because, you see, Bush's generals were vested in the only status quo they knew or understood, which is why Generals are so often accused of “fighting the last war.”

Well, ditto for Generals Larry Summers and Tim Neither. Their advice has been, and remains, to as quickly as possible recreate the status quo ante for America's financial services industry. After all, it's worked so well – at least for those two guys. Both Summers and Neither prospered mightily from the investment and commercial banking system as we've come to know and loath it. And, since they know they will not be in government forever, they'll be heading back to that industry when this ride is over.

There's a head-banging counter intuitiveness to this which should, by now, be apparent to President Obama. But, like George Bush before him, Obama has decided to follow the advice of some of the very individuals who helped created the problem in the first place.

And, when you hire Willie Sutton and Clyde Barrow to come up with a plan to secure the nation's banking system you get ... well, you get the point.

Anyway, the only reason I mention all that is because I've been watching what the big money center banks that got hundreds of billions of dollars in taxpayer bailouts have been doing with all that money. Or, more to the point, what they are not doing with it, like helping hard-pressed borrowers.

There's a giant disconnect between what Obama says the bailout funds are for and what's really happening outside the Presidential bubble. Just last week, for example, Obama said that mortgage interest rates were now so low that struggling borrowers should run down to their federally bailed out bank and refinance, thereby lowering their mortgage payments by hundreds of dollars a month.

Sounded good, so one of my long-time readers from Rochester, Minn. tried doing just that, and here's what he discovered the bank was up to:

Steve,
Well, I checked out refinancing my 10-year old mortgage yesterday with Wells Fargo (who hasn't sold it yet!) and boy did I get a dose of reality. I can lower my interest rate from 6-3/8 to 4-3/4 and save around $400 dollars in monthly payments.

HOWEVER, the bank rolls the closing costs of $4,500 into the mortgage amount to be refinanced AND I will have to pay for mortgage insurance since I owe more than 80% of the appraisal value of the house.

All I wanted to do is lower my monthly mortgage payment to keep more cash in my pocket. I was even willing to re-set the mortgage starting at a new 30-year period in order to do this.

So, do I take a chance and pay $450 for the home appraisal that might result in PMI plus pay $4,500 in closing costs to refinance? I don't think so. So, I'm just going to sit on my mortgage and probably see the value of the house go down another 10% or more over the next year.

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Stephen Pizzo has been published everywhere from The New York Times to Mother Jones magazine. His book, Inside Job: The Looting of America's Savings and Loans, was nominated for a (more...)

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