The Fall of Bear Stearns - The Little Guy Gets Slaughtered

With the failure of Bear Stearns, one of this country's oldest financial institutions, things really seem to be going to hell in a hand basket. Ace Greenberg has got to be sick. And, although a lot of analysts believe that BS was the big bubble that came up, I am not sure if we've seen the worst.

It is also getting worse for the homeowners who are in trouble with their loans. I've noticed that banks stay right on schedule with the foreclosure process by sending the file out to their respective law firms, but they are unwilling to put the proper resources toward servicing and answering their borrowers' requests for help. And I am just sick of it. The lenders created a lot of this mess by making all these loans in the first place. And then they just walk away and leave all of us to clean things up. I know of one lender who sold out to a very large wire house. They wire house cut all their retail operations and left 50 employees to service the entire country. Over the past few years, this lender issued billions of dollars of loans. Some people will lose their homes simply because the lender does not have the resources to get back to them quick enough. That is simply unfair.

I ask you to write to your Senators and Congressmen and ask them to investigate this issue. It is a nationwide problem and it's making the crisis much worse. Lenders should be held responsible to service the loans they've put on the books. Not just close up shop and leave the general public in trouble. And all this is not just financially devastating. It is emotionally devastating, destroys marriages, effects people's ability to work and their ability to sleep on night. If a borrower submits a hardship package, along with all requested information, the lender should be barred from taking any foreclosure actions until they've taken steps to address these issues with their borrower. It should be malpractice for an attorney to initiate a foreclosure action until they verify that the lender has responded to the hardship request.

Best way to contact Congress is to visit the congressional website at www.congress.org and enter your home zip code. Tell them a story of someone who can't pay their mortgage, has requested help from their lender and the lender has told them that they can't get back to them for 3 months (if you don't have a story, email me and I'll send you some!). Tell them that these people are facing foreclosure and can't even make partial payments since the lender won't accept their checks. It should be illegal; it certainly is unethical and immoral.

And as we watch our economy falter and possibly head toward some of the most difficult economic times since World War II, it occurs to me: how did we get in this mess in the first place? It is, of course, partially the public's fault. They are not without any blame. But with Wall Street so hungry to purchase loans, thus giving lenders the opportunity to create loans which they could sell almost immediately, you have to place a lot of blame on the system. Most home buyers are unaware of how the system works - they only know one thing: they want to buy and the lender is willing to lend. And their willingness drove prices up. Its all supply and demand. More money available will drive up prices. Now money is less available and prices sink. Simple economics and, as usual, the little guy gets slaughtered. The big lenders are being bailed out, i.e. Bear Stearns. A significant portion of the deal is being guaranteed by the Federal Reserve since they are afraid BS is so large that their ultimate failure will have a terrible impact on the economy. But now the Fed has to divert funds from other uses. The little guy gets slaughtered. Wall Street backs off on buying lenders' paper, waits and then goes back in to buy at pennies on the dollar. The little guy gets slaughtered again.

If you have your own stories, please email me. I'd be happy to pass them along to Congress and the media.