Mr. President – You Need to Deal – By Ken Gross

Mr. President – You Need to Deal

The big speech came – and went. Another speech offering that which we anticipated but not that which America needs. A proposed $447 Billion program – and the President neglects to mention the price tag in the speech. I suppose that is the prerequisite to avoid addressing in specifics a realistic plan to pay for it. After witnessing Congress’s infantile behavior last month on the deficit cap – it is a certainty that the President’s program will go nowhere – other than causing another slow burn of intransigence by Congress.

Sometimes you need to make a deal that your adversary cannot refuse. You do this carefully – but when you need something done  – if it’s important enough – you do it. In this case, the President needs two things – he needs to stimulate jobs and the economy and he needs to garner support for next November. Instead of offering a plan the Republican’s will now have a field day complaining about – he should have taken the podium and laid out a program the Republican’s could not refuse. First – tell us it’s going to cost $447 Billion. Second – that though he doesn’t like it – we’re going to pay for it by shelving Obama Care for 5 years – with the exception only of keeping the no pre-exisiting condition requirement and providing coverage for dependent children to age 26. Third – acknowledge what everyone already knows –without a housing market the economy has no chance. To stimulate housing, tell us that mandated principal reduction on homes underwater will occur and that you will mandate easing the credit restrictions to refinance and purchase a new home. Top this off by telling us that the cost will be charged to the banking industry who caused this fiasco.

Mr. President, if you went in this direction,– the Republican’s could not say no – because the cost would be covered, we all want economic growth and the banking lobby would be handcuffed to protest. If you want four more years – you’re going to need to be a much better deal maker.

Ken Gross is an attorney with THAV GROSS PC (www.thavgross.com) and hosts The Financial Crisis Talk Center (www.fctalkcenter.com), a radio program that airs weekly at 8:30 AM on Saturday mornings on WDFN “The Fan” 1130 AM.

Update – Mortgage Modification Bankruptcy Bill

As of 4-9-09 – Cram Down Bill is in Trouble …

MORTGAGE MODIFICATION, EXECUTIVE COMPENSATION LIKELY TO BE DROPPED FROM SENATE AGENDA

Senate Democratic leaders appear likely to drop several high-profile legislative issues from their agenda, including efforts to tax bonuses paid to corporate executives and giving bankruptcy judges the ability reduce mortgage payments on the primary mortgages of chapter 13 debtors, according to a CongressDaily report today. Senate aides said that the legislative agenda this year might increasingly focus on revamping financial regulations — which could reach the Senate floor in late summer — and on health care reform. The chamber will reconvene April 20 by taking up a fraud-enforcement bill that authorizes increasing Justice Department funding and authority to crack down on mortgage fraud and other crimes related to federal assistance programs. Those efforts come as more high-profile legislation sits on the back burner in the face of opposition from Republicans and moderate Democrats. Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Chairman Max Baucus (D-Mont.) have said that they have not dropped efforts to craft a bill slapping heavy taxes on bonuses for firms such as American International Group that received bailout money, but Democrats have no immediate plans to move an AIG bill in the face of White House concerns and strong opposition from the banking industry. Also faltering is mortgage cramdown legislation that lobbyists and some senators say lacks the votes to pass. Reid has said previously that he is prepared to drop the cramdown language provision from a broader housing bill if the votes are not there.

As of now, the bill has passed the House, but is being delayed in the Senate. Timing as of now looks like it will come up after the Spring Recess in mid April.

As of 3-18-2009 (No Change as of March 31, 2009)

Senate Democrat Says 60 Votes Not Likely on Cramdown Provision

A key Senate Democrat said yesterday that it was unlikely the chamber would consider a bill to allow bankruptcy judges to modify terms of a primary mortgage until after the spring recess, CongressDaily reported today. Sen. Evan Bayh (D-Ind.) said there is not enough support to prevent a filibuster of the bill that would allow mortgages to be restructured through a chapter 13 filing. “I think this is going to be probably not taken up until after the upcoming recess. But right now I think there is going be some difficulty in getting to the 60 votes,” said Bayh. Senate Majority Leader Reid said that timeframe was about right. “I would expect very soon after we get back after April recess that we’ll be working on what they [Banking Committee] report out,” he said. He is working with Judiciary ranking member Arlen Specter to narrow the eligibility for borrowers who could cram down the principal of their mortgages. Senate staffers met yesterday afternoon in an effort to work on a compromise. The House-passed version allows bankruptcy judges to consider whether homeowners were offered a “qualified” loan workout similar to a plan the Obama administration has announced to help lower the interest rate for up to 9 million families. But the House measure did not mandate that the borrower had to take such an offer if he were eligible, in lieu of cramdown – a provision advocated by the lending industry. Senate moderates are pushing for such a requirement. Bayh said he is looking to impose a sunset period for the cramdown provisions

Auto task force should pump up sales, not concessions

Commentary

Auto task force should pump up sales, not concessions

Ken Gross

We’re back to Stage 1 with the auto bailout. GM has been told it must gain greater concessions from the bondholders and the UAW within in 60 days or else. Chrysler has been told it has 30 days to cut a deal with Fiat or else. We’re told the banks and AIG are too big to fail. Our country’s largest manufacturing industry, however, is not.

It is apparent that this double standard is not going away. Rather than dwell on the idiocy, maybe we need to point our government in a different direction.

The Obama administration’s auto task force may have no auto experience, but it appears that it lacks business sense as well. The key to getting beyond this crisis is not endless streamlining, plant closings and union concessions. All of the concessions in the world will not cause a turnaround in the industry if sales remain at 60 percent of normal levels. No business can sustain a loss in 40 percent of its sales volume, yet alone a capital-intensive industry such as the auto industry.

The fact is that the industry will burn through the money unless auto sales are stimulated.

To do that, all that is needed is to provide government guarantees to the banks on leases and loans to buy domestic-made vehicles. The interest rates should range from 1 percent on fuel-efficient cars to 4.99 percent on the SUVs.

The federal program has to say to the banks: If you want the guarantee, then you must approve loans for buyers/lessees with FICO scores above 600 (not the ridiculous new requirement of 700 that has killed the market). If the buyer/lessee defaults, then the bank is covered on 90 percent of the loss following repossession and sale of the vehicle.

Government-backed guarantees to the bank are the foundation of the manner in which the Small Business Administration has done business for years in financing new businesses. Implementation of such a program would not be difficult.

How do you get the banks to comply? First, if the government guarantee is in place, then the banks will recognize a good deal and extend the credit. As a backup, the Treasury needs to condition any further Toxic Assets Relief Program funds to the banks so all such extensions of funding constitute a demand loan, which means the Federal Reserve can call the loan at any time and demand repayment. This is precisely how these same banks lend money to businesses.

If the banks don’t start lending money and doing as the Fed sees is in the public interest, then the Fed calls the loan. Either the banks play ball or they are out of the game.

Congress, it is not that complicated. Please, grabbing the microphones to scream about AIG bonuses and complaining about the auto industry of the 1970s. Instead, do something smart for a change.

Ken Gross is managing shareholder at the Metro Detroit law firm of Thav, Gross, Steinway and Bennett and host of “The Financial Crisis Talk Center,” which airs at 9 a.m. Saturdays on WDFN Radio 1130 AM.

Auto Industry Bail Out – What is so Complicated?

I don’t understand the financial wizards. If the Detroit Automakers go down – you might as well extend Lake Michigan to Lake Huron. Congress needs to get real. The key, however, is not just to give the big three money – they will burn through it unless AUTO SALES ARE STIMULATED.

To do that – all that is needed is to provide government guarantees to the Banks on auto loans and leases for the purchase or lease of domestic manufactured vehicles. The interest rates should range from 1% on fuel efficient cars to 4.99% on the SUV gas guzzlers. The Federal Program has to say to the Bank – if you want the guarantee – then you must approve loans for Buyers/Lessees with FICO scores above 600 (not the current ridiculous new requirement of 700 that has killed the market). If the buyer/lessee defaults, then the Bank is covered on 90% of the loss following repossession and sale of the vehicle.

This, coupled with enough money to get the Big 3 through the crises – is a plan that will work. Once auto sales and leases get going – so will our economy and only then will a turnaround occur.