Point By Point Rebuttals Of Incoming FED Chairman Jerome Powell’s Speech Of July 6, 2017

By November 15, 2017Financial Analysis

Point By Point Rebuttals Of Incoming FED Chairman Jerome Powell’s Speech Of July 6, 2017

By Dick Eastman

JEROME POWELL: The global financial crisis ended in 2009, and the economy has just completed its eighth consecutive year of expansion. We are near full employment. The housing market is generally strong, although it is still recovering in some regions. To preserve these gains, we must ensure the stability of our financial system. With that goal in mind, we are near completion of a comprehensive program to raise prudential standards for our most systemically important banks.

But fundamental housing finance reform–including reform to address the ultimate status of Fannie Mae and Freddie Mac, two systemically important government sponsored enterprises (GSEs)–remains on the “to do” list. As memories of the crisis fade, the next few years may present our last best chance to finish these critical reforms. Failure to do so would risk repeating the mistakes of the past.

Dick Eastman Comment: Jerome Powell says the financial crisis ended in 2009.  The financial crisis for the domestic household and business sectors and for public goods and services has been unending.  He says there have been eight consecutive years of expansion, but he is merely looking at GDP which throws the income of Goldman-Sachs in with the average American working man and the American small businesses and looks at the total and declares that the national economy is expanding.  Remember, in the Dow “Industrials” index Goldman-Sachs is one of the “industrials”.  The way the economy is measured is misleading, to hid the effects of economic criminality upon the real economy.

And what does Jerome Powell, the former  Davis Polk & Wardell lawyer mean by saying that the housing market is generally strong?  What is his measure?  What is he looking at?  Only one thing! Bank mortgage lending!  That is his measure.  That is as deep as his analysis of “the strength of the housing market” goes.

Whether Jerome Powell, the appointed and approved Federal Reserve Chairman beginning February 1, 2018, believes the crisis has ended and that the economy is expanding or not,   the claim is a monstrous falsehood in any but the most pedantic technical sense divorced from any accounting of what the crisis was, who was hurt and what constitutes recovery and expansion.  The debt-deflation-default-depression crisis is still upon the real domestic economy of the household, domestic business and public goods sectors.   When all of the gain is made by Goldman-Sachs, which is now counted as an “industrial” in the Dow Industrial stock measure, while the small businesses and farms of the country are still languishing in unpayable debt and very high real interest rates (regardless of what the nominal rates are), Americans should not take that as recovery or expansion.  When a person carries a tape worm parasite and the tape worm parasite gains weight the human host to the parasite should not count that as his gain.  There are two loops in our economy, the lower loop of the real economy of domestic production and households and government that provides services and there is the financial sector and international trade sector that includes those who lend the lower-loop economy the entire money supply.  The lower loop, if they knew what was being done to them, would view themselves as the Jefferson loop of the common man.  The upper loop is the Hamilton loop of lenders, speculators, bond holders and holders of large idle cash balances.  The two loops are connected especially by the housing market.  The money supply of the country comes from deposits created when people borrow to build homes or to refinance or take out a second mortgage — always at compound interest.  The loan involves the creation of a new bank deposit that the “borrower” may spend right away and the co-created debt-obligation placed upon the borrower to pay principal and interest over subsequent months and years.  The deposit created for the borrowers injects money into circulation  and the payments by the borrower back to the financial sector drains money from the loop of circulation.  This is the fundamental problem of every national economy around the world and Jerome Powell talks as if the problem doesn’t exist.  I’d like to ask him how strong the “strong housing market” is that has so many Americans homeless and so many houses sitting empty?  Does he mean that speculation and refinancing are going on stronger than before and that prices of homes are going up?  Is that what he means by strong?     

JEROME POWELL: The Pre-Crisis System.   Congress created Fannie Mae in 1938 and Freddie Mac in 1970. For many years, these institutions prudently pursued their core mission of enhancing the availability of credit for housing. Beginning in the early 1980s, Fannie and Freddie helped to facilitate the development of the securitization market for home mortgages. They purchased and bundled mortgage loans, and sold the resulting mortgage-backed securities (MBS) to investors. Fannie and Freddie also guaranteed payment of principal and interest on the MBS. With this guarantee in place, MBS investors took the risk of changing interest rates, and the GSEs took the risk of default on the underlying mortgages. Thanks to the growth in securitization, these two GSEs have dominated U.S. housing finance since the late 1980s.

ick Eastman Comment: Fannie Mae. a private corporation since 1968 does not lend money to homebuyers, it is a device whereby the moneyed elites can buy or sell mortgages, just as the Federal Open Market Committee gives them option to buy or sell government bonds and other securities to the biggest bankers and brokers.   When the rich want cash Fannie Mae buys the mortgages they hold, just as the Open Market office of the New York Federal Reserve Bank will accommodate their liquidity needs with an open market purchase of their securities.  Fannie May — its real name is the Federal National Mortgage Association — makes mortgages liquid for those who speculate in them.  They are purchased from Fannie May for the interest they pay.  In the same way the NY Fed Res Bank Open Market conducts open market sales of securities to give the moneyed elites a way to move from money deposit into earning securities. 

JEROME POWELL:  The pre-crisis system did its job for many years.   By promoting standardization, structuring securities to meet a broad range of investor risk appetites, and issuing guaranteed – 3 – MBS, Fannie and Freddie brought greater liquidity to mortgage markets and made mortgages more affordable. But the system ultimately failed due to fundamental flaws in its structure.

Dick Eastman Comment: Spoken as a bank lawyer.  The truth however is far different. The “pre-crisis” period was a time for setting up the economy for several great plunderings! Paul Volker before he was the great money tightener when appointed Fed Chairman in 1979 actually was the man under whom the double digit inflation of the late 1970’s was created.  Before he became chairman Volker was President of the Federal Reserve Bank of New York where all Open Market bond buying by the Fed was conducted (called by the euphemism “quantitative easing”) which flooded the loanable funds market suppliers with too much money, creating the inflation that caused the crisis for Savings and Loan institutions whose income was in long term mortgage loans paying fixed 6 per cent when the interest they had to pay depositors to compensate for inflation at 12 per cent became impossible — a deliberate set up to force the financial deregulation that set things up for the greatest financial sector swindle of the real economy to date.  Volker did his part in this coordinated attack, but other components were needed for the plunder to succeed. Depository Institutions, Deregulation and Monetary Control Act of 1980 — deregulation of bank deposits, permitting a wider variety of account types and eventually eliminating interest ceilings on deposits and the Garn–St. Germain Depository Institutions Act allowing money market accounts were authorized with a minimum balance of no less than $2,500, no interest ceiling, and no minimum maturity.  The inflation was the cattle prod that moved people from their savings and checking accounts at local banks that invest locally to the money market accounts in which the bank buys government bonds from Wall Street instead.   It was Donald Regan who invented money market accounts and investigated their potential and whose influence got them set up by the Deregulation Act and Depository Institutions Act.  This coordinated move American savings from local investment to Wall Street investment and forced the S & L’s and other local banks to put their money, no longer in loans to sound businesses, but into high-interest-paying-because-absurdly risky junk investments — new shopping malls in the middle of deserts and so on.  Only bad investments qualified and the big money was in having bankers set up as a developer and given all the money for an impossible venture doomed to fail, but which, before it failed would pay a high interest rate on a loan.  American savings were diverted American investment from housing and infrastructure to junk bond funded boondoggles. Infrastructure and small business start-up growth and development were priced out of the market as loanable funds for those levels of risk were no longer being offered as before.   And small local lending institutions, thousands of them — the traditional enemy of the Eastern financial Establishment, were forced out of business.   Reagan, before moving to the White House as Ronald Reagan’s Secretary of the Treasury, had been Board Chairman and Chief Executive Officer for Merrill Lynch from 1971 to 1980, and it was he who developed the money market fund  which replaced money in the local commercial banks during the late 1970’s  S & L’s in the NYFRB Volker inflation.  The country lost, although the people never understood what hit them, and the money lords in the care of the bank lawyers won their game. This is just one snapshot of what the “pre-crisis” system that Jerome Powell says “did its job for many years” was really all about. 

Before we get bogged down in details me state the important thing about Jerome Powell, where he comes from and the game he and his friends are playing.  The banks and the law firms that serve them operate in a field far broader than what American savers, businessmen and consumers of stock and bond and mutual fund  brokerage services know and what is much more important, they operate, far more effectively than government and government regulators and with further scope and reach, on a macro-economic level.  They control money supply and the volume of lending, which means the volume of purchasing power and the debt which always eventually eats purchasing power in the economy.  While the owner of a small firm deals only in micro-economics, the supply and demand, consumer tastes, costs of factors faced by their firm and the underwriters for the local banks which lend to such businesses look at pretty much the same  — the big boys have more the perspective of God — knowing what the money supply and interest rates will be because their “club” controls those things.  When they set up to make a killing, the domestic real economy is helpless and clueless in their hands. 

Like Donald Regan set up the money market account as a new financial product — that was really a fully understood component of gigantic financial larceny on the macro-economic scale. dimly understood by the public as the Carter inflation and the obscurely super costly S & L scandal, so too, for plunder schemes in the 21st century, was the setting up of the system of securitized mortgages.  Lewis Ranieri created and analysed the potential in securitized mortgages for Saloman brothers, which at the time, the 1970’s, were illegal in most states.  Ranieri hired mathematicians to explore the possibilities and develop the second financial instrument for the great plundering in the default crisis.  They invented the collateralized mortgage obligation, which breaks mortgages into different marketable instruments each with different risk and payment characteristics.  This experimentation in the dark arts was made acceptable by the S & L Scandal that Volker had set up with his inflationary open market operations at the NY Federal Res Bank.  The “crises” gave the rationale for making it OK to move losses to S & Ls off the books and into realms where Saloman Brothers could use them to create the new collateralized mortgage obligations products.  Ranieri worked with the hopelessly lost Freddie Mac packaging older loans into the first securitized mortgages and in 1984 the Secondary Mortgage Market Enhancement Act was enacted making the mortgaged backed securities legal throughout the country.  Now the organized crime club operating at the macroeconomic level were in a position to again inflate the economy with massive mortgage lending — every household would get one or several calls from mortgage companies asking them to refinance —  as housing increasing the money supply with this new lending  — and it was now the deregulated Wall Street investment banks making the home loans and as quickly bundling them into securitized mortgages  and selling them around the world — while they took the cash  — and then, the Federal Reserve contributed its part to the crime by allowing the M1 money supply to actually go negative which deflation of the amount of money in circulation in the real economy created the default crisis — that made the holders of the cash proceeds from those securitized mortgage sales wealthy with a gigantic deflation premium, the payoff for the crime that Jerome Powell refers to only as “the financial crisis.”  But that one great crime had other dimensions. 

Ranieri and his mathematicians devised the collateralized mortgage obligation, which takes mortgages and breaks off various characteristics, such as the payment of principal from the payments of interest, the payments in the first few years versus later payments, or and especially, when the variable rate mortgages are tied to the LIBOR rate, all these characteristics of the collateralized mortgage obligations are broken up “repackaged” into different marketable “tranches.”   The different tranches possible with a collateralized mortgage obligation are like different derivatives one can buy.  Derivatives are pure bets on this or that, whereas collateralized mortgage obligations have an actual mortgage or dissected component of a bundle of mortgages underlying them so they are not classified as derivatives, but they are equally dangerous and equally inviting to Big Finance using them to plunder the public.  A collateralized mortgage obligation is issued by the legal owner of a pool of mortgages.  The mortgages are the collateral on the tranches.  Freddie Mac and Fannie actually insure against borrower delinquencies on some collateralized mortgage obligations so that there is only interest rate risk but not default risk for the buyer, otherwise the ones who buy certain tranches get the default risk while other tranches do not.  Now one type of collateral mortgage obligation is the floating rate tranche with is attached, as are all fixed-loan mortgages, to the LIBOR rate, which is the London Interbank  Offered Rate and one variation of such a collateralized mortgage obligation is the  “Inverse Floater” the important characteristic of which is that when the LIBOR rate goes up the coupon pay-out goes up.   So we have the collateral mortgage obligations developed by Lewis S. Ranieri and his team at Salomon Brothers including the floater inverse which can be created so that the owner makes money when the LIBOR rate controlling variable mortgage rates go up.  Now recall that the “financial crisis” broke out in 2008 and that also in 2008 the LIBOR rate was being criminally fixed.  The rates banks upon which the LIBOR rate is set were false, meaning that the LIBOR was being set for the special interest of those doing the setting or those with ties to those doing the setting.  The LIBOR rate of course affects the outcomes of hundreds of trillions of dollars in derivatives outcomes, but too it determines the payments that must be made by people around the world with variable rate mortgages.  In other words the LIBOR was fixed to profit those very sophisticated elite investors in the inverse floating rate tranches which pay when the LIBOR goes up.  So here we have another great scandal in the financial sector related to mortgages — done at the macro-level with special interests controlling the machinery that should be impersonal market driven.  The Federal Reserve created the inflation and the resulting crisis made it easy to force the deregulation to set up the S & L scandal that moved American savings to junk ventures rather than solid business and infrastructure funding.  And the LIBOR and the invention of the collateralized mortgage obligation with the inverse floaters that made money when the LIBOR drove up variable interest rates that peaked at just the same time that housing was being imploded by the M1 money supply deflation that began the default crisis  and subsequent real economy depression.  Make no mistake, the criminal increasing of the LIBOR rate in 2008 forced millions of defaults around the world that otherwise would not have occurred.  The Libor scandal and the deflationary actions of the Fed and the big banks (who cut lending) worked together to enlarge the deflation and defaulting on debt that took down middle class life around the world.  Let me add one more thing to this account of corruption of this system that Jerome Powell says “did its job for many years.”  In July 2012 the LIBOR rate fixing became widely known and Congress was planning to call a financial forensics mathematician Robert Holmes, who developed algorithms with which he could trace which of the certain big profitable financial positionings, as with inverse floater collateralized mortgage obligations, had to be entered with prior knowledge of how the LIBOR would be set.  Holmes was known as the man who could do that forensic work.  On January 20th Holmes son James was found in a car outside the Aurora theatre in Aurora Colorado where he was arrested for the mass-murder shooting and killing of 12 movie goers in the theatre.  Those who arrested him claim he said that his apartment was booby trapped with bombs — they also noted that he seemed disoriented.  There were claims by witnesses in the theatre that there were multiple gunmen.  After studying the available information I concluded that James Holmes had been set up, that he was controlled with scopolomine by a team that included his psychiatrist, who, I am convinced, helped prepare James Holmes for the set-up and brought him under chemical control to say what he said.  A characteristic of scoloplomine when used in this way is that while the victim obeys everything he is commanded to do, he has no recollection of anything he did or anything he was told after the scopolomine wears off.  It is obvious to anyone who knows the facts of the LIBOR scandal and the Aurora Theatre shootings and the blaming of James Holmes in July of 2012 that the Bankers behind the trillions of dollars of criminal action represented by the LIBOR scandal of 2006-2008 that Robert Holmes and what happened to his son, were “made an example” for anyone who would dare look into these crimes involving trillions of dollars in derivatives and millions of lives in high adjustable rate mortgages and defaults.  If they can do this to the son of the star witness for the persecution and get away with it, they can and will do it to anyone who threatens them with exposure.  And that is the economic system that Jerome Powell says was “doing its job” pre-crisis.  

To summarize, the financial system pre-2008 was not “doing its job” for the American people.  It was, however, doing its job for the companies and agencies Jerome Powell has worked for. 

JEROME POWELL: In the early days of securitization, the chance that either GSE would ever fail to honour its guarantee seemed remote. But the question always loomed in the background: Who would bear the credit risk if a GSE became insolvent and could not perform? Would Congress really allow the GSE to fail to honour its obligations, given the devastating impact that would have on mortgage funding and the housing market? The law stated explicitly that the government did not stand behind the GSEs or their MBS, as Fannie and Freddie frequently pointed out in order to avoid tougher regulation. Nonetheless, investors understandably came to believe that the two GSEs were too-big-to-fail, and priced in an implicit federal government guarantee behind GSE obligations. In the end the investors were right, of course. The implicit government guarantee also meant that investors–including banks, the GSEs themselves, and investors around the world–did not do careful due diligence on the underlying mortgage pools. Thus, securitization also enabled declining lending standards. This was not only a problem of the GSEs–private label securitizations also helped to enable lower underwriting standards.  Over time, the system’s bad incentives caused the two GSEs to change their behaviour and take on ever greater risks.  The GSEs became powerful advocates for their own bottom lines, providing substantial financial support for political candidates who supported the GSE agenda.  Legislative reforms in the 1990s and the public/private structure led managements to expand the GSEs’ balance sheets to enormous size, underpinned by wafer-thin slivers of capital, driving high shareholder returns and very high compensation for management. These factors and others eventually led to extremely lax lending conditions. The early 2000s became the era of Alt-A, – 4 – low doc, and no doc loans.  These practices contributed to the catastrophic failure of the housing finance system. Almost nine years ago, in September 2008, Fannie and Freddie were put into “temporary” conservatorship and received injections of taxpayer funds totalling $187.5 billion.   In the end, the system privatized the gains and socialized the losses.

Dick Eastman Comment:  Here Jerome Powell blames the government sponsored enterprises, Fannie Mae and Freddie Mae for the “financial crisis.”  They were not backed by government insurance and they used that as an argument for why they should not be regulated more closely, but the “investors” just assumed that the government would have to back institutions and so they did more risky things than the government was thinking they would do, not making sure they were lending borrowers more on the “prime” side of the risk equation.  That is of course a monstrous falsehood, and one based on a will to deceive and cover-up than upon honest ignorance on Powell’s part.   The Fed and the big banks causing the M1 money supply to actually shrink in quarters just prior to the default wave and the LIBOR fixers increasing the rate so that mortgage payers would have to pay higher interest with all the while the criminal club had bundled (securitized)  their mortgages and sold them to the Chinese to escape all the default risk and gaining themselves big holdings of dollars that would each appreciate in purchasing power  due to the deflation caused by the M1 dip and the rigged-LIBOR – caused rate hikes.  That was the real cause.  And let me add one more thing, showing the wonderful timing and coordination of this gigantic crime.  The bankers are also the owners of the oil corporations.  When did the highest gasoline prices ever hit the USA?  It was in July 2008.  That was the third deflationary shock, added to the money and lending policy shock, the rigged-LIBOR deflation from higher than should-be adjustable-rate-mortgage rate levels.   The Club  — the criminal masters of what I call the Bank-of-England/East-India-Company/Rothschild system of debt slavery and economic exploitation — perpetrated this atrocity, rigging things in a completely corrupt system which Jerome Powell says was “doing its job” pre-crisis.   To make that claim from his position he must be fully integrated into the Club and its criminal ways — defending it and taking a position from where he will assist in the next great plundering of the people. 

JEROME POWELL: The build-up of risks is clear in hindsight. But many officials and commentators raised concerns long before the collapse.  The long-standing internal structural weaknesses of the old system ultimately led to disastrous consequences for homeowners, taxpayers, the financial system, and the economy.

Dick Eastman Comment: The build-up to the deflation-default-depression that he calls the “financial crisis” was a carefully and scientifically designed grand crime involving many important institutions with complicit criminals steering each one to do its part in wrecking the economy for their own financial gain and geo-political ends.  The disaster was not caused by “long-standing internal structural weaknesses” but by institutions created by law which were weaponised by the hired agents of the Club for which Jerome Powell is a mouthpiece and a willing executioner.

JEROME POWELL:  Reforms to Date: Before considering the path forward, it is important to acknowledge that today’s housing sector is healthier and in some respects safer than it was in 2005. Although there are significant regional differences, national data show that housing prices have fully recovered from their gut-wrenching 35 per cent drop during the crisis. Mortgage default rates have returned to pre-crisis levels. Mortgage credit is available and affordable for strong borrowers.

Dick Eastman Comment: Nowhere does Jerome Powell mention the deflation that really kicked off the event or the criminal fixing of the LIBOR rate which raised mortgage interest rates beyond what people were able to pay given the fall in money supply which makes possible their pay-checks and the banker’s oil companies raising, for no good reason, gas prices that households must pay to the highest level in history.  Those factors are not “long-standing structural weaknesses.”  And it is absolutely false that “today’s housing sector” or any sector of the American real economy is “healthier” or “safer” than before.   The criminal Club which Jerome Powell is serving and concealing is merely in a different phases of the bankers money-making cycle.  They have harvested with deflation and now they must allow more home financing to get people once more in debt to provide the nation its money supply and to build up the economy so that when the next phase comes and they cut the money supply and call in loans and raise gas prices and rig the adjustable interest rate levels they will have new residential units, new businesses and new privatized public utilities to reap in their deflation-season wealth harvest.  The “gut-wrenching 35 per cent drop in the prices of housing units” is deflation and as long as the Club exists those engineered deflations will continue to recur.  I forgot to mention that the bankers who own the oil companies are also the slum lords of all the big cities  — and the deflation that cause waves of mortgage defaults are what allow those lords to pick up new rental properties cheaply.  It’s all one great criminal Club and Jerome Powell is clearly running interference for its coming plays.             

JEROME POWELL: There has also been meaningful progress in reforming the old system.

In 2008, Congress enacted the Housing and Economic Recovery Act, which, among other things, created the Federal Housing Finance Agency (FHFA), modelled on and with similar powers to the Federal Deposit Insurance Corporation. Under the FHFA’s oversight, the two GSEs’ retained portfolios have declined to about half of their pre-crisis size, and are expected to continue on a downward path. The FHFA and the GSEs have also been working to develop a market for the GSEs to lay off their credit risk. These innovative transactions have raised about $50 billion in private capital that now stands between taxpayers and mortgage credit risk in the GSEs’ portfolios.

In addition, the creation of a Common Securitization Platform should strengthen the GSEs’ securitization infrastructure and facilitate further reforms with an eye toward enhancing competition.

New regulations have also been put in place since the crisis with the goal of encouraging sound underwriting of mortgage loans. Today, lenders must make a good faith effort to determine that the borrower has the ability to repay the mortgage. Moreover, if the lender provides a “qualified mortgage” contract to the borrower, then the lender needs to meet certain other requirements.

For example, some contract features such as an interest-only period or negative amortization, where the loan balance increases even though the borrower is making payments, are taboo. Upfront points and fees are limited too.

Dick Eastman Comment:  The great plundering crimes never occur in the same way as before.  There are always new institutions set up, we are told, to correct the structural weaknesses of the previous system that went wrong.  And the public’s Elizabeth-Warren-level  understanding of these “new safeguards” are always far too incomplete to recognize that these new institutions are Trojan Horses that set up conditions for the success of the next crime with the next generation of financial innovations, the securitized mortgages and the inverse floater collateral mortgage obligations of the next phase  — but of course the key feature of the next disaster will also be deflation and the Fed led by Jerome Powell as chairman and whoever will be the president of the New York Federal Reserve Bank Open Market Operations.  They will always say that they are “fighting inflation” and that that requires austerity and higher interest rates and a tighter money supply from reduced lending and more loan calls — they are still able to get away with all of that deception and manipulation — but it will hit in different ways as new institutions new Trojan Horse “safeguards” are put in place.  And the people have only a handful who knows what is going on whose souls are not sold to the devil in covering up what will be going on.           

JEROME POWELL: Today’s Challenges.   These reforms represent movement in the right direction, but leave us well short of where we need to be. Despite the GSEs’ significant role in this key market, there is no clarity about their future. When they were put into conservatorship, Treasury Secretary Paulson noted that “policymakers must view this next period as a ‘time out’ where we have stabilized the GSEs while we decide their future role and structure.”

Almost nine years into this time out, the federal government’s domination of the housing sector has grown and is actually greater than it was before the crisis. Fannie, Freddie, the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs have a combined market share of about 80 per cent of the purchase mortgage market, with the remaining 20 per cent held by private financial institutions.

After reaching nearly 30 per cent of the market before the crisis, private-label securitization has dwindled to almost nothing today.
The two GSEs remain in government conservatorship, with associated contingent liabilities to US taxpayers.

Fannie and Freddie have remitted just over $270 billion of profits to the Treasury, more than paying back the government’s initial investment. However, under current terms of the contracts that govern their access to Treasury funds, their capital will decline to $0 by January 1, 2018. Today, Fannie Mae and Freddie Mac have more than $5 trillion of MBS and corporate debt outstanding, which is widely held and receives various forms of special regulatory treatment. And because of their scale, these enterprises continue to serve as important standard-setters and significant counterparties to other firms.

While mortgage credit is widely available to most traditional mortgage borrowers, those with lower credit scores face significantly higher standards and lower credit availability than before the crisis. We can all agree that we do not want to go back to the poor underwriting standards used by originators prior to the crisis. But it may also be that the current system is too rigid, and that a lack of innovation and product choice has limited mortgage credit availability to some creditworthy households. According to a survey by the American Banker, in 2016 only nine per cent of mortgage originations failed to meet the qualified mortgage contract criteria, down from 16 per cent in 2013.

The same survey reported that almost one-third of U.S. banks make only qualified mortgage loans, despite the fact that FHA- and GSE-eligible mortgages are exempt from the qualified mortgage requirements until January 2021 or until housing finance reform is enacted, whichever date comes first.

Dick Eastman Comment:   Jerome Powell says “there is no clarity about the future” regarding these two institutions that lend no money to home buyers but buy mortgages in the secondary market to the primary lenders want liquid funds in place of the bad loans they were holding due to the engineered deflation that made them bad.  I am amazed that those two institutions, according to Powell, have $5 trillion in securitized mortgages and corporate debt. Why?  That is a lot of “contingent liabilities to US taxpayers.”  Why doesn’t he say that Fannie Mae and Freddie Mac are left holding the bag and there is no way to explain their existence or alter their condition as wreckage of the last great plunder operation of the Club. Does Powell realize that the entire money supply of the economy is borrowed and that home financing is the primary loan channel by which the money enters circulation in the real economy?  Does he know that apart from the GDP statistic of “how the economy is doing”, the statistic that adds the real economy’s deflationary depression losses to the financial sector’s Goldman-Sachs revenues and concludes that the economy is, on the whole, in Gross Domestic Product terms, doing well.  Every loan in the sowing season of the Club’s criminal cycle adds to the money in the economy and builds the economy — until the drain of interest and principle from the co-created debt obligation, whether simple or collateralized mortgage obligations, means deflation and contraction and more business and household default and austerity and privatization of public assets.  That is the trap our economy is in and that is the trap that the soon-to-be Federal Reserve Chairman does not acknowledge as a problem or even as an existing condition.  He is focused on the old bankers’ game of playing with lending to home buyers to capture money for Wall Street.  He is not looking at building the real domestic economy and raising standards of living with a permanent money supply that does not vanish as soon as interest payments catch up with and get ahead of loan deposit creation.  He will be chairman of our central bank he will continue focused on the systems by which bankers make money in housing markets as effected by the big macroeconomic variables which the Club secretly controls to its own advantage and against the interests of everyone else.  Read what Powell says above and you see he is focused on all the wrong aspects of the situation.  

JEROME POWELL: Applying the Lessons of Banking Reform to Housing Finance:  The post-crisis reform program for our largest banks presents an appropriate standard against which the housing finance giants should be judged. After eight years of reform, our largest banking institutions are now far stronger and safer. Common equity capital held by the eight U.S. global systemically important banks has more than doubled to $825 billion from about  $300 billion before the crisis. After the crisis revealed significant underlying liquidity vulnerabilities, these institutions now hold $2.3 trillion in high-quality liquid assets, or 25 – per cent of their total assets. Under rigorous annual stress tests, they must demonstrate a high level of understanding of their risks and the ability to manage them, and must survive severely adverse economic scenarios with high levels of post-stress capital. And they must file regular resolution plans that have made them significantly more resolvable should they fail. These measures were implemented to reduce the risk that a future crisis will result in taxpayer support, and to help ensure that the financial system could continue to function even in the event that one of these banks were to default. It is ironic that the housing finance system should escape fundamental reform efforts.

Dick Eastman Comment:   How absurd.  His advice, follow the standard of Goldman-Sachs and Salomon Brothers and apply that to the Housing Market.  Yes Chase and Goldman and Citibank and the rest are stronger and safer — after all they were the criminals in the successful plundering of the middle class homebuyers and in fact the entire economy.  And yes, the big establishment banks — the “systemically more important banks” — have made rules that they should keep higher reserves than the little banks, but why is that?  Simply because they are planning another deflation that all banks will feel, but, as the plan is worked out, the big banks will have the reserves to withstand what happens and the little lending institutions will not.  They will fold and the “systematically more important banks” will have the field to themselves.   This is not only in the United States.  The strategy is worldwide, coordinated by the Basel accords.  The favoured big banks are required to have enough to survive the next season of deflation drain and the smaller banks do not.  It is that old war of the Establishment and Rothschild banking interests against all others who would provide banking services to people.  Jerome Powell is ready to do his share to make sure “the systematically more important banks” will displace all of the unimportant ones.         

JEROME POWELL:  The housing bubble of the early 2000s was, after all, an essential proximate cause of the crisis. Housing is the single largest asset class in our financial system, with total outstanding residential real estate owned by households of $24 trillion and roughly $10 trillion in single-family mortgage debt.  While post-crisis regulation has addressed mortgage lending from a consumer protection standpoint, the important risks to taxpayers and the broader economy and financial system have not been robustly addressed. The most obvious and direct step forward would be to require ample amounts of private  capital to support housing finance activities, as we do in the banking system. We should also strive for a system that can continue to function even in the event of a default of any firm. No single housing finance institution should be too big to fail.

Dick Eastman Comment: There are no bubbles.  What there really is is an economy that is living and developing with ample money from the first impact of an increase in lending which is then hollowed out as the interest and principal payments begin to drain purchasing power away.  At the critical moment the banks, pretending that they fear inflation, suddenly stop lending and call in loans and the central bank raises the interest rate while allowing M1 money supply to grow slower or, as in 2007, to shrink.  Then, in response to that deflation of purchasing power, of money in circulation, businesses do not get the sales, they do not place the new orders, they cut hours of working people, who spend less — starting the deflationary spiral — but the debts incurred stay nominally the same, and with the deflation they in reality become much heavier to bear — and the system collapses.  Not because there was too much economic activity, too much optimism, too much industry, too many undertakings — but because the Club decided that they wanted all of that which has been built up to suddenly fail and default and go into receivership, with all of the asset wealth created going from the hands of the borrowers to the hands of the creditors who sabotaged the money supply.  But Jerome Powell does not tell it that way.   His solution is “to provide ample amounts of private capital”  — like those reserves to the 8 systematically important banks — so they can survive to swallow up the non-toxic assets remaining after the little banks have stopped breathing.  And he seems to be in favor of letting the banks that will fail to fail.  There will be no saving of the “unimportant” banks not among the 8 that are too rich to be in danger of failing.

JEROME POWELL: Greater amounts of private capital could come through a variety of sources, including through the entry of multiple private guarantors who would insure a portion of the credit risk, through risk-sharing agreements, or through expanded use of credit-risk transfers. Although private capital must surely be part of the reform effort, there may be limits to the amount of risk that we can credibly expect the private sector to insure. It is extremely difficult to appropriately price the insurance of catastrophic risk–the risk of a severe, widespread housing crisis. Both the private-sector insurance industry and government have struggled with this, particularly with how to smooth the consistent collection of premiums with the irregular pay out of potentially enormous losses that may be needed only once or twice in a century. Furthermore, losses can be correlated across asset classes and geographies in these catastrophic events, rendering risk-diversification strategies ineffective. Fannie Mae and Freddie Mac have successfully transferred some credit risk to the private sector, but have thus far avoided selling off much of this catastrophic credit risk, arguing that doing so is not economical.

Dick Eastman Comment: He is talking about getting the money reserves so the big banks can survive the next planned deflationary event designed to destroy all of their little competitors.  Maybe, he suggests in all that fog, the government should help the private sources build up that war chest of bank reserves for the banks they want to survive.  That is what he is really saying to those listening in that room to his speech, the speech that won him the Fed Chairmanship appointment.             

JEROME POWELL: Principles for Reform.  After promising legislative initiatives have moved forward but fallen short of enactment, the air is again thick with housing finance reform proposals. As I mentioned at the outset, housing finance reform has important implications for the Federal Reserve’s oversight of financial institutions, and for the U.S. economy and its financial stability.

While I would not presume to judge these reform proposals, I will offer some principles for reform. These principles are based on the lessons learned from the old system’s collapse, and from the experience of post-crisis bank reform.

First, we ought to do whatever we can to make the possibility of future housing bailouts as remote as possible. Housing can be a volatile sector, and housing is often found at the heart of financial crises.

Our housing finance institutions were not — and are not — structured with that in mind. Extreme fluctuations in credit availability for housing hurt vulnerable households, reduce affordability and availability, and, as we have seen, can threaten financial stability. As with banks, the goal should be to ensure that our housing finance system can continue to function even in the face of significant house price declines and severe economic conditions. Changing the system to attract large amounts of private capital would be a major step toward that goal.

Dick Eastman Comment: He “will not presume to judge these reform proposals” — because that is for the owners of the Club he serves to decide.  So he merely suggests, first, that the bankers cycles of loan reflation followed by the harvest of interest-drain and lending-contracting defaults are inevitable but that no matter how many households and “unimportant” lending-institutions are crushed, the structurally important banks — the 8 elite banks — can keep on going taking up the non-toxic asset cream skimmed from fallen nobodies and carry one to banking aristocracy paradise.

JEROME POWELL: The question of the government’s role in the new system is a challenging one for Congress. Many of the well-known reform proposals include some role for government. Some argue that government cannot avoid bearing the deep-in-the-tail risk of a catastrophic housing crisis. A number of proposals incorporate a government guarantee to cover this risk, to take effect after a significant stack of private capital is wiped out.

Dick Eastman Comment: Let the little competitors fold before the government steps in with sharing the burden of “deep-in-the-tail” risk gone wrong.          

JEROME POWELL: That brings me to my second principle: If Congress chooses to go in this direction, any such guarantee should be explicit and transparent, and should apply to securities, not to institutions. Reform should not leave us with any institutions that are so important as to be candidates for too-big-to-fail.

Dick Eastman Comment: In other words, in this next conflict, the fittest survive and the rest prove their unimportance by perishing.  There will be no effort to save any bank.              

JEROME POWELL: Third, we should promote greater competition in this market. The economics of securitization do not require a duopoly. Yet there is no way for private firms to acquire a GSE charter and enter the industry. This is akin to having only two banks with federal deposit insurance, which would make competition by other banks very difficult.  Greater competition would help to reduce the systemic importance of the GSEs, and spur more innovation. Greater competition also requires a level playing field, allowing secondary market access to a wide-range of lenders and thereby giving homebuyers a choice among many potential mortgage lenders and products.

Dick Eastman Comment: In other words, let the important banks, get in the game, and pick over the assets held by Ginnie Mae and Freedie Mac and take the cream.             

JEROME POWELL: Fourth, it is worth considering simple approaches that restructure and repurpose parts of the existing architecture of our housing finance system. We know that housing reform is difficult; completely redrawing the system may not be necessary and could complicate the search for a solution, using the existing architecture would allow for a continued smooth, gradual transition.

Dick Eastman Comment: In other words, don’t change the system so that our tricks no longer work.

JEROME POWELL: Fifth and last, we need to identify and build upon areas of bipartisan agreement.  In my view, at this late stage we should not be holding out for the perfect answer. We should be looking for the best feasible plan to escape the unacceptable status quo.

Dick Eastman Comment:  In other words, all of the interest groups with political power must know that they will have a share of the spoils in the next and greatest plunder by the Club.  We can’t have anyone with a significant political voice not bought off.            

JEROME POWELL: Conclusion – I see two reasons why this is a good time to address the housing finance system’s shortcomings. First, the economy and the housing sector are healthy. It would be far more disruptive to implement fundamental structural changes during difficult economic times.

Dick Eastman Comment: To those who gained in the great crime Powell calls the most recent “financial crisis” — like big earner Goldman-Sachs — these times are good and the sectors are “healthy”    And of course the deflationary harvest is planned as the temporary reflation sowing of new lending is going on.  So now is the time for financial and regulatory “innovation.”      

 JEROME POWELL: Second, memories of the crisis are fading. If Congress does not enact reforms over the next few years, we are at risk of settling for the status quo — a government-dominated mortgage market with insufficient private capital to protect taxpayers, and insufficient competition to drive innovation. There is a serious risk, if not a likelihood, that this state of affairs may persist indefinitely, leaving our housing finance system in a semi-permanent limbo. Fortunately, we are blessed with a growing menu of reform options available for public vetting. And there appear to be areas of broad agreement among them. One of those plans, or a combination of different features of various plans, might well suffice to move us to a better system. Housing finance reform will protect taxpayers from another bailout, be good for households and the economy, and go some distance toward mitigating the systemic risk that the GSEs still pose.

Dick Eastman Comment:  Jerome Powell has hidden from those listening the great fact that the entire domestic money supply with which businesses are paid, workers receive pay-checks and government receives taxes for funding public services, all of that money is borrowed money, meaning it was co-created with an obligation to pay back to the financial sector, to the Club, principal equal to the deposits created by the loans plus compound interest, and that banks can contract the money supply at any time by lending less and calling in more loans or the Fed by raising interest rates too high to “fight inflation” which never really was a threat — (all inflation is deliberate inflation created by the central bank — as was Volkers in the mid and later 1970s at the NY Fed Res Bank before he became Fed Chairman.)   

What a man in charge of the money and lending of this nation should be telling the people is that he is going to end the all-borrowed money supply and provide the country with permanent money — money that is not co-created with a debt obligation  — and that this goverment money will be distributed free of charge to the people so they themselves can be the first to spend it into circulation on their household needed.  Money for the country should not come from banks creating deposits in exchange for the new debt obligations of home buyers or small business borrowers.   The nation should have all of its money permanent.  The banks should no longer have the power to create money as they do when they make a mortgage loan.  Rather houses should be paid for by the money of savers who pool their money in a lending club  — a savings and loan that only lends the savings it is given by households for the purpose of lending  — a savings account.    You know the system we need.  It is what populist monetary reformers have been saying for 150 years and more.  They follow the ideals of Thomas Jefferson.   Jerome Powell and the Club are in the tradition of Alexander Hamilton, who was an agent of Rothschild and the City of London, seeking for every American to be a debt slave and to be periodically relieved of all he has toiled to build up so that the creditors can have it during a planned deflation.  It is the old story — but Jerome Powell wants you to think that it isn’t the old story.  He wants you to go to sleep with his speech so he and the Club he works for can set up the next round of reflation and deflation which leaves the people dispossessed of the America they thought to be their own.