One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the “option adjusted spread” on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners’ annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.

American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

via FRB: Speech, Greenspan–Understanding household debt obligations–February 23, 2004.

COMMENT:

Here is the housing bubble timeline on Wikipedia. People have expressed puzzlement on how Greenspan missed the housing bubble.

He didn’t. The above statement is at least one element of his own huffing and puffing to further inflate the bubble.

He saw that it was all about to end and put out a statement to encourage lenders to keep it going to a new level. As the Wikipedia describes 2003-2007:

The Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender’s ability to securitize and repackage subprime loans.^[28]

In under two years, Greenspan was able to get out of the Fed and go on to make millions in the private sector (except that the Federal Reserve is private and all Greenspan’s millions were related to his public influence, so it is a meaningless expression in our world).

I still hear people (especially fellow Republicans) talk about how the housing crash came because people bought houses they couldn’t afford. This is disinformation–an evil projection of the sins of the upper class on the lower.

It is true that virtually no American hates debt as much as he should, as much as the Bible tells him to do. This has been a design of American policy at every level (public school, media, government “consumer protection,” etc) for easily over a century. The design was a success. It was to make Americans vulnerable to predators–who are the ruling class of the United States. Greenspan was openly providing cover for a hard press sales job that would attempt to get more people to take on more debt.

The government was out to consume the weakest of their people. They are Alan Greenspan’s food.

As much as people claim that the poor are unwise, they neglect to point out the obvious: that the poor are unwise because they trust people who have money and power. They are prey. The government and ruling culture of America, from the Federal Reserve, to Wall Street, to the education system, to the news industry, are all a system that is a predatory lender.

In 2004, it looked like the law of diminishing returns was about to be felt. Greenspan wanted to buy more time and see more people squeeze more money out of the system before the crash.

Walter Williams writes:

… promoting jealousy, fear and hate is an effective strategy for politicians and their liberal followers to control and micromanage businesses. It’s not about the amount of money people earn. If it were, politicians and leftists would be promoting jealousy, fear and hate toward multimillionaire Hollywood and celebrities and sports stars, such as LeBron James ($48 million), Tiger Woods ($75 million) and Peyton Manning ($38 million). But there is no way that politicians could take over the roles of Oprah Winfrey, Lady Gaga and LeBron James. That means celebrities can make any amount of money they want and it matters not one iota politically.

The Occupy Wall Street crowd shouldn’t focus its anger at wealthy CEOs. A far more appropriate target would be the U.S. Congress.

via Pitting Us Against Each Other – Opinion – PatriotPost.US.

COMMENT:

Read the whole column for the full context. Walter Williams notes that celebrities earn ten times as much as CEOs and therefore opposition to CEOs, simply because they make so much more money, doesn’t make sense.

I think this point is leaving out what Williams should know is going on.

It is truly sickening that OWS is against freedom and therefore the free market. But this fact shouldn’t be used to evade the fact that the US Congress is the target of Occupy Wall Street. The perception is that wealthy CEO’s (though especially in the financial sector) are in control of Congress. Congressional hatred of CEOs is just a diversionary tactic. Agents for the enemy always cover themselves by acting patriotic and Obama himself shows how politicians hired as “muscle” for corporations pretend to be against “big business.” This is easy to do because “big business” is a wide target and one can destroy sectors of it at the behest and for the profit of other sectors.

Celebrities don’t wield this kind of political power. They are not being opposed because OWS is better than it knows. It is against slavery, not against wealth in itself.

Again, having no concept the private sector can regulate itself, or how the “financial sector” is mostly the opposite of the real economy (and thus smudging “deregulation” of productive businesses with the empowerment of bankers to pillage Main Street), derails OWS from doing anything good, but why ignore what is really going on.

Walter Williams was an early influence of mine. His The State Against Blacks made me never able to forget how State interference in the economy hurt the poor for the sake of the middle and upper classes while hiding the damage. But I simply don’t see why that same perspective is not being used here. Congress is simply the enforcement arm of Wall Street. I’d like OWS to have a clearer and more consistent opposition to Congress and the President, but Williams column will do more to polarize the situation than bring clarity.

What is immediately obvious is that US debt is currently $3.5 trillion higher than where it would be had America’s banks not received a rescue. That is Sean’s conclusion. It is however incomplete. The truth is that this is a proportional increase which if extrapolated into the future, means that every year the US will incur well over $1.2 trillion each and every year as a result of bailing out the banks. That is the true cost to Americans regardless of what Tim Geithner may claim. But note how we said First. Unfortunately, the Second Great Financial Crisis, that of bailing out insolvent sovereigns, is currently and process. And when all is said and done, the global cost in terms of new “trendline” debt will be many more trillions in incremental debt every year.

Read the rest and see the chart: Visualizing The True Cost Of The First Bank Bailout: $3.5 Trillion And Rising At Over $1 Trillion Every Year | ZeroHedge.

By the end of World War I the central place of petroleum in world strategy had become obvious, and the dramatic thirst of military operations had led to fears that there would be a global oil shortage, and to quick appreciation of the profits to be made in such circumstances. American companies, who had been unwilling to explore abroad when vast oilfields were being discovered at home in Texas and California, began to look overseas, and the American government began to use considerable political and economic pressure to try to force American companies into the European-dominated consortia in the Middle East. However, new fields came on line in the 1920s, and the big companies were soon worrying instead about an oil glut. By 1928 there were negotiations between BP, Shell, and Exxon* in a Scottish castle, and the so-called Achnacarry Agreement set out working principles to avoid competition at the marketing end of the oil industry. The agreement specifically excluded the US market because of its powerful anti-trust legislation, but there is no question that the companies had no intention of serious competition there if they could hammer out an agreement for the rest of the world.

The Economist of London praised the Achnacarry Agreement as “an example of the effectiveness of international cooperation in oil marketing.” The Economist was pleased with the “stability” of the prices of oil and gasoline, but it’s not clear whether the articles was written with the seller or the consumer in mind. Mobil, Gulf, and Texaco had joined the three founder companies by 1932, to make six. The results for producers were very rewarding: stable (but higher) prices gouged the consumer for decades, and “pirates” were dealt with summarily whenever possible.

With the Achnacarry Agreement in hand, each large company could feel that it would be able to negotiate a market share for its oil without seeing petroleum prices crash. The stage was now set for serious prospecting, and for staking out major oilfields, even though every company could see that it would not be in a position to pump all the oil that it found. After 1928, therefore, the era of the great Middle East oil strikes began, though Middle East production remained low.

In 1928 the six-year negotiations over Iraq were completed, and the Iraq Petroleum Company was re-divided. 5% went to the formidable Mr. Gulbenkian, and the other 95% was shared equally between the British (BP), the Dutch (Shell), the French (CFP, the Compagnie Française Pétrole), and a Rockefeller-controlled American group (Exxon + Mobil). The Iraq company was essentially set up as an accounting company, to share the production costs and the crude oil between the partners.

On June 1, 1932, Socal (now Chevron) struck oil in Bahrain, the first strike in the Arabian peninsula. In 1933 BP extended its Iranian lease for another 60 years. Gulf joined with BP to explore a Kuwaiti concession in 1934. But 1938 marked the major turning point in Middle East oil history: Gulf and BP struck the Burgan field in Kuwait, and Chevron struck oil in Saudi Arabia.

*I have used the modern names of oil companies in the discussion that follows to save confusion: thus, “Exxon” rather than “Esso”; I call the largest oil companies “the majors”.

Read the rest at OPEC and Crude Oil.

So what exactly qualified a person or persons as “pirates”?

See here and here for why I post this.