Today I sent the following “Letter to the editor” to a few local papers, and a few national ones.  I don’t expect it to be published, but we have to do what we can.

Last night, Saturday November 7th, the house of Representatives passed H.R. 3962, the Affordable Health Care for America Act.

This has been billed as a “historic accomplishment” that is being compared to Social Security and Medicare. That sounds about right, so let’s take a moment to look at those two programs. At last count, the unfunded Social Security liability is just under 14 Trillion dollars, adding in Medicare and the Prescription Drug benefit our total unfunded liabilities is estimated at just above 106 Trillion dollars.

Just to put those in perspective, that 14 106 Trillion Dollars is just above $344,000 per citizen of the United States of America. That’s right, a family of only three is on the hook for more than ONE MILLION dollars of unfunded liabilities just to keep Social Security and Medicare afloat.

I believe it was Albert Einstein who said “the definition of insanity is doing the same things over and over again and expecting a different results.” Well, here we go again. We are on the verge of creating another gigantic government program that could very well be the straw that broke the camels back.

Granted, our health care system isn’t perfect, it could use a good does of tort reform and some other “non politically popular” reforms; however, a “Public Insurance Option” isn’t the answer.

Democrat, Republican, Independent, but more importantly American, we MUST stop this power grab from our elected leadership. In the words Ronald Reagan, one of our greatest Presidents, “Government is not the answer to our problems, government is the problem.”

Edit: 14 stuck out to correctly be 106 in the 3rd paragraph.

Well, it looks like my stop on Ebay was tagged during the trading day today.  Ebay ended the day up, however during the day it dropped just far enough to tag the top and cause me to quickly exit the position.

My short calls are November 25’s, EBay is trading at $22.38 and I’m fairly bearish right now. I’m going to keep the calls as Theta burn is going to kick in hard core here and hopefully ditch them for $0.05 in the next week or so.

I’ll start hunting for some new positions in the next few days as this recent stop sweep has freed up some capital.

With the addition of my CLI shorts the other day, I’m now negative delta (-107.52) (beta weighted to SPY) so that should help out after we run up again early in the week.

I’ll update the papermoney portfolio in a bit, I’ve got to finish watching the game and then go to bed!

This article from Peggy Noonan at the WSJ is awesome.  A must read:

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers. Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren’t rising, they’re bobbing, and will settle. No one believes the bad time is over. No one thinks we’re entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They’ll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

It is a story in two parts. The first: “They do not think they can make it better.”

I talked this week with a guy from Big Pharma, which we used to call “the drug companies” until we decided that didn’t sound menacing enough. He is middle-aged, works in a significant position, and our conversation turned to the last great recession, in the late mid- to late 1970s and early ’80s. We talked about how, in terms of numbers, that recession was in some ways worse than the one we’re experiencing now. Interest rates were over 20%, and inflation and unemployment hit double digits. America was in what might be called a functional depression, yet there was still a prevalent feeling of hope. Here’s why. Everyone thought they could figure a way through. We knew we could find a path through the mess. In 1982 there were people saying, “If only we get rid of this guy Reagan, we can make it better!” Others said, “If we follow Reagan, he’ll squeeze out inflation and lower taxes and we’ll be America again, we’ll be acting like Americans again.” Everyone had a path through.

Now they don’t. The most sophisticated Americans, experienced in how the country works on the ground, can’t figure a way out. Have you heard, “If only we follow Obama and the Democrats, it will all get better”? Or, “If only we follow the Republicans, they’ll make it all work again”? I bet you haven’t, or not much.

This is historic. This is something new in modern political history, and I’m not sure we’re fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Part of the reason is that the problems—debt, spending, war—seem too big. But a larger part is that our federal government, from the White House through Congress, and so many state and local governments, seems to be demonstrating every day that they cannot make things better. They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more in an attempt to make us more healthy locally and nationally. And in the long term everyone—well, not those in government, but most everyone else—seems to know that won’t work. It’s not a way out. It’s not a path through.

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They’ll raise taxes.

I talked with an executive this week with what we still call “the insurance companies” and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress “are trying on every front to increase the role of government in the regulatory area.” The executive said of Washington: “They don’t understand that people can just stop, get out. I have friends and colleagues who’ve said to me ‘I’m done.’ ” He spoke of his own increasing tax burden and said, “They don’t understand that if they start to tax me so that I’m paying 60%, 55%, I’ll stop.”

He felt government doesn’t understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they’re human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they’re all rats. (That would be you, Chamber of Commerce.)

***

And here is the second part of the story. While Americans feel increasingly disheartened, their leaders evince a mindless . . . one almost calls it optimism, but it is not that.

It is a curious thing that those who feel most mistily affectionate toward America, and most protective toward it, are the most aware of its vulnerabilities, the most aware that it can be harmed. They don’t see it as all-powerful, impregnable, unharmable. The loving have a sense of its limits.

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren’t they worried about the impact of what they’re doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they’ve never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don’t have the habit of worry. They talk about their “concerns”—they’re big on that word. But they’re not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa’s lap.

They don’t feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—”strongest nation in the world,” “indispensable nation,” “unipolar power,” “highest standard of living”—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America’s luckiest children, sons and daughters of the abundance, and they call themselves optimists but they’re not optimists—they’re unimaginative. They don’t have faith, they’ve just never been foreclosed on. They are stupid and they are callous, and they don’t mind it when people become disheartened. They don’t even notice.

Yesterday we had the pleasure of enjoying a 200 point rally in the Dow driven by a headline GDP report of +3.5% in the third quarter.  The headline number looks great; however, when you pull back the covers it isn’t that pretty.  Today’s report of a .5% reduction in consumer spending for Sept further enforces that fact that GDP last quarter was a total joke, and very unsustainable.

Let’s take a quick run through the GDP numbers and de-stimulus them, much like Mr. Denninger did here.

First, lets get the facts:

• Headline GDP was +3.5%
• Motor vehicles added 1.66% (Cash for Clunkers)
• Government spending was up 7.9% (Stimulus package)
• Personal income decreased by .5% ($15.5 billion)
• Personal taxes increased by $4.8 billion
• Personal disposable income decreased by $20.4 billion

I like how Karl Denninger setup the math, so I’m going to do it the same way:

GDP – Cash for Clunkers – (Government Increases * Government % of GDP) = Adjusted GDP

3.5% – 1.66% – (7.9% * 30%) = -.053%

That looks a little more realistic.  Jobs are still falling off a cliff, incomes are falling, prices are starting to slip, taxes are up so one would expect that GDP would be very soft.  By removing the impact of a one time stimulus that simply pulled demand forward, we get a much better picture of things to come.  The recession appears to be far from over.

In his analysis, Karl also ran the real impact of personal disposable incomes and calculated it to be a Quarter over Quarter decrease of 7.2%.  That is HUGE.  Couple this with the fact that personal spending was up, we are again just kicking the can down the road.

The WSJ backs up this analysis as well:

The 0.5% drop in spending was the largest since December 2008, when the recession was at its worst. Most of the drop was in durable goods, which include autos. Outlays on nondurable goods and services posted a gain from last month. Spending rose 1.4% in August, revised up from a previously estimated 1.3% increase. That gain was driven by “cash for clunkers,” which let motorists swap gas guzzlers for newer models. The car-rebate program started in July and ended in late August.

The subsidy helped push the economy to what the government reported this week was a 3.5% increase during the third quarter, seen as an end to the recession. But the recovery is expected to be slow, and questions abound to its sustainability once government stimuli fade. Another popular incentive, the first-time homebuyer tax credit, lapses in November, although the housing industry is trying to push an extension through Congress.

[snip]

With nearly 10% of the U.S. labor force out of work, incomes aren’t going up much. September’s flat reading followed a 0.1% August gain, revised from an originally reported 0.2% increase.

Personal saving as a percentage of disposable personal income was 3.3%, compared to 2.8% in August.

This one time temporary boost might have been enough for the NBER to declare the recession over – for now.  Just don’t get your hopes up that we have truly turned the corner.  When you get to pick and choose the numbers to report, while ignoring the long term effects of your policies, it isn’t hard to generate one time pops.  Just remember as Dave Rosenberg points out in this mornings Breakfast with Dave:

While it seems very flashy, 3.5% growth is far from a trend-setter. Let’s go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters. That is almost 25% of the time, by the way. And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak. What is important for the future is whether the U.S. economy can manage to sustain that 3.5% growth performance in the absence of ongoing massive government stimulus. In other words, it may be a little early to uncork the champagne.

Well said Dave… Well said.

Well, the new papermoney portfolio just took a swing through stop central and unloaded quite a few positions, and with some triggered orders I added a few more while I was at it.  Time will tell if the additions do anything good for the portfolio, however I’m getting the sinking feeling in my gut that I am chasing losers here.  As a relatively inexperienced individual equities trader, I’m getting the feeling that I could be chasing my tail with WMS.  I’ll be working some fairly aggressive stops on that one to protect my backside.

FUQI

Well, this is an interesting company and an issue I was hoping to hold on to for a longer period of time.  Unfortunately, I might have been a bit late to the party and I think it is going to cost me a bit of cash.  I remain short my Nov Calls and will monitor the underlying price to manage risk as is needed.  My stop was triggered for 300 shares at 24.86.  After taking a longer look at the chat for FUQI, it is fairly obvious that this issue was showing signs of weakness when I bought it.  Oh well, live and learn.

WMS

I’m a glutton for punishment.  This is an issue that I may regret owning soon enough.  Take a look at the chart and you can see why.  After the earnings announcement, WMS fell through my first 100 share stop at 44.79 and I closed out, then I bought 500 shares on a GTC order from a while back at 43.00.   Currently, this beauty is down to 41.76 a share – and in no mans land.  The only good news today was that the move today was on lower volume, but I’m really reaching for straws at this point.

Fundamentally, WMS is a good company in a great industry – casinos. Lets face it, the economy sucks and it isn’t going to get better anytime soon so the sin industries are a good place to be.  WMS is a high beta stock (1.86) so I expect this one to move around a bit.  My buy order at 43 was well placed when I put it in; today, maybe not so much.  I’m going to give this one a little bit of wiggle room to see what happens as things settle down.  I’ll set a stop to protect myself just in case just below 40.  My real fear with this is that it is working its way back to fill the gap highlighted on the chart.  If that happens, I’ll be out well before we get there and I may be a buyer again at those levels.

CLI

This company appears to be a wreck financially, money is moving away from real estate and well, it appears as though it is getting read to break support.  Given all of those factors, I’m getting ready to short 500 shares of CLI @ 29.90.  If it breaks down, I’ll fill and then sell a bunch of puts at 25 to lock in some additional gains, lower my cost basis and hopefully have this put back to me for a nice little profit.

A few weeks ago I decided to tweak the papermoney portfolio again.  Rather than going for a bunch of option plays on index products, I wanted to simulate some “money management” via positional plays on individual equities and managing risk via index option plays as needed.  The goal with the portfolio is to earn roughly 2-4 percent a month and compound the gains throughout the year.

E-House Holdings

It looks like I was stopped out of E-House holdings today (EJ – chart on right).  This is a Chinese real estate firm that was (and remains) very interesting.  I purchased the shares a little too high, so I’ve paid for that mistake.  I am currently short 5 Calls @ 22.5 and I’m going to keep the calls as I’m a buyer if we can break out to above the 21/22 level and will cover those short calls very quickly with stock.

If you take a look at the chart, you can see that on a longer term basis, EJ is in no-mans land.  There is no good reason to buy here, however I am also a buyer again if we can break the 200 day EMA so I’m putting in an order to sell puts at @15  for a reasonable credit to possibly get put into the position.

Buy selling covered calls and shorting puts to buy stock I am constantly generating income in the portfolio.

It’s not April 1st, so this can’t be a huge joke… Wow, incompetence at its best.

After determining pay packages…. Via the NYTimes:

“I wouldn’t begin to say how much money you should make on Wall Street,” Mr. Feinberg said in an interview last week, as he prepared to slash pay for the top 25 earners at seven firms that received significant government aid. “I’ve never worked on Wall Street. I don’t claim to know the ethos of Wall Street.”

[snip]

“If any one of these people left, I would be very disappointed,” he said.

Whoops, on the same day as the NYTimes article – Via Business Insider and here:

As if we needed any proof of the fact that arbitrarily cutting salaries drives away top people.

It turns out that a quarter of the execs targeted by our new Pay Czar Kenneth Feinberg jumped ship before their pay cuts were even finalized. [emphasis mine]

Where did they go?

To their old firms’ competitors of course where they can command market rates for their work.

No kidding?  You mean that the marketplace works that that when the government sticks is grubby fingers where they don’t belong it leads to unintended consequences?  So now, we the people effectively own these firms that are a shell of there former selves and are left with the managers who couldn’t get hired by the other firms.  Excellent… If there was any doubt we are going to lose all of our “investment” it should be gone now.

Can we fire this incompetent czar?  I’d like to have at least had the opportunity to vote for someone with a fricking clue.  This guy doesn’t even know what the market rate is for a financial exec and somehow expects to arbitrarily slash pay and hope that they won’t change employers.  That is change we can believe in.  Of course, the message from the execs is keep your damn change, I’m out.

After my last post about what an emergency fund is and how to build one up, I’m hoping that everyone who read it is on their way to get that started!

Having something as basic as an emergency fund is a must, especially in times of economic stress.  I’m not going to get into a dissertation about the next few years, but let’s just say that for a number of systemic reasons, we are not going to get away from economic stress for quite some time.  As a result, you need to start that emergency fund … yesterday!

Once that emergency fund is working it’s way up to a reasonable funding level, it is time to start killing any and all debts that you have.  There are a million reasons why, I’m only going to talk about a few of them here, then I’ll give you two simple plans to kick the debt habit.

The rich rule the poor, and the borrower is servant to the lender – Proverbs 22:7

Think for a moment about the debt that you have and what it really means for financial health on a monthly basis.  Let’s take as an example a common expense for many Americans, the monthly car payment.  The loan that you took out to buy your car provides you with a car today, and obligates you to pay a lender a few hundred dollars every month until the debt is serviced in full.  You don’t own the car, you are simply borrowing the car and are indebted (a servant to) the lender.  Your work is their profit, every month until you can pay off the car.  If you cannot make your payments, the lender will take the vehicle away and you will be without a car, and without anything (except a jacked up credit score) to show for your months of payments.  Then course there is the issue of how much cash you end up spending to purchase the vehicle vs. the actual cost of the car, but that doesn’t matter all that much – what matters is that you are financially enslaved to another person/entity.  In times of stress like this, maximum financial flexibility is critical.

An example…

Let’s assume that you take home $3,000 per month after taxes.  If your mortgage is $1,200 and your car payment is $300 then fully 1/2 of your take home pay is spoken for each and every month.  In order to simply cover your debts you need to take home $1,500 after taxes each month.  If you could simply remove the $300 burden, that would reduce your minimum fixed costs by 20%.  That would also provide you with an effective increase of 20% in spending/savings capability each month.

Is that car really worth $3,600 a year in lost spending/savings capability to you?  Do you really need the latest and greatest whatever it is?  Do you really want to be enslaved to the tune of $3,600 each year to a lender?

All of these questions are working to get at the heart of debt and what it means to you. Debt is like a financial noose around your neck.  There is of course some debt that is good and can help to make you and others better off; however, that is another topic of discussion.  When you borrow to consume you are effectively lighting a match to your cash, and your financial health.  This of course gets worse and worse as we get further and further into debt…

Levering up, with more debt – the credit card!

Let’s take that quick example from above and make it a touch more dramatic (and sadly, realistic).  Assume that you have the average household credit card debt of $8,000… We’ll use some basic figures like a 3% minimum payment, interest rate doesn’t matter for this discussion.  The reality is that you are going to be spending and additional $240 a month just to service that debt!  So now, you have another $2,880 in debt service obligations each year – a total of $6,480 or 18% of your take home pay in my simple little example. Imagine simply ridding yourself of the credit card and car payments and getting an effective raise of 42% in spending/savings power every year!

For the math geeks out there, that is ($36,000 – $14,400) / ($36,000 – $14,400 – $3,000 – $2,880) – 1 = 42% change in discretionary income.

This of course becomes much more dramatic if you include things like food and utilities as non-discretionary expenses.  But lets just keep it simple for now.  We don’t need to over complicate things

I’m sold, let’s get this paid off!

The rubber is about to meet the road here.  First things first – make sure you have an emergency fund setup.  I’m dead serious about this, get that emergency fund setup first.  The last thing you need is to pay off $1,000 of debt only to have some random expense come up and totally destroy the emotional wins that you’ve just made.  This will cost you a few extra dollars in the long run, but the emotional and momentum gains it will give you are critical.  So get that fund setup!

What makes you tick…

Before we work through the two methods to pay off the debt, ask yourself a question… Are you predominantly guided by logic and rational decision making, or emotional decision making.  Be honest, this choice may mean success or failure in paying off your debt.  Using the simple rules below, pick a target debt and then follow the 7 step process…

Emotionally driven folks should target the debt with the smallest balance first, when that is paid off, move onto the next smallest balance – always.

Rationally/logically driven folks should pick the debt with the highest interest rate, when that is paid off, move to the next highest interest rate debt, always.

The difference in the two approaches is simple.  For the emotional folks, you will build momentum by paying off a small debt first.  That gives you the high you typically feed off of to continue the quest to kill your debt!  For the rational folks, I don’t want to see you get hung up on paying off a small interest rate card first and then give up because you rationally (and correctly) think that you are paying down the wrong debt based upon the overall cost.  The reality is that in the end, the differences between these two approaches is so small that it doesn’t really help or hurt either side to pick what works for their brain.  Just pick what feels right.

7 Steps to get out of debt

1. Carve out some cash to extinguish debt.
   • This could be the money you were saving to build your emergency fund, or better yet – this could be the cash you save from scaling back your cell phone plan, cable plan, eating out habits or any other part of your life. You don’t have to be a hermit, but you need to spend within your means, so identify the fat and kill it.
2. Pay all minimum payments on your accounts – all of them.
   
3. On the account identified as your target account, add your savings identified in step one to the payment on that account.
4. Repeat 2 and 3 until that first debt is paid off.
5. Take all of the money that was being used to pay off your first target debt (minimum payment and extra payment cash) and apply that amount as the extra payment to the next debt you’ve identified as a target.
6. Repeat steps 2 and 3 until that is one is gone
7. Repeat steps 5 and 6 until they are all gone!

Using this simple little plan against the debts we discussed in the example above will pay these off in a relatively short order of time and save you $6,480 a year in payments!  That is a huge increase in saving/spending capability going forward.  I’d suggest that you save at least 1/2 of that money, preferably more, but that is up to you!

Enjoy your new debt free life – it’s fun to have a lot more money without getting a raise from your employer.  You’ll feel better about your financial health, your stress will go down and heck, you can now take a vacation and pay cash as a reward if you want to.  Just remember, debt enslaves you, so save up first, then enjoy the fruits of your labor!

It’s been a while since I’ve written any posts regarding personal finance, and I happen to think this is a very important topic.

Yesterday, my wife and I were discussing how and when to pay off my car. That is one of the few debts we still have and one that we decided made sense financially when we bought the car.  We’ve made steady progress in knocking down the principal very quickly and are now at a point where we can pay it off if we want to.

You might be asking yourself, what on earth does paying off a car have to do with an emergency fund?  Nothing directly, but the process of building an emergency fund and savings has allowed us to have the money in savings to pay off the car.

Let’s start with what an emergency fund is not.  In my mind, it is not your living expenses fund for 3-6 months, it is not your vacation savings fund, it is definitely not your 401(k) or retirement savings accounts.  An emergency fund is simply a savings fund that has a reasonable amount of money in it to pay for “emergency” events that occur. (Your own personal circumstances will have to define reasonable)

You know the ones I’m talking about, new tires on the car, broken window in the house, unexpected this that or the other thing.  Those expenses that are unexpected, unplanned and typically not in your budget!  Those are the kinds of expenses that typically result in credit card debt that piles up and takes forever to pay off.

To combat those expenses, you can simply build up and emergency fund.  This is a lot easier than it sounds.  By simply putting away $100 dollars a month you can quickly build up to a $1,200 fund that can cover most of those quick and unexpected expenses.  The side benefit is that once you get in the habit of saving $100 a month, you can begin to roll those savings over to other accounts when your emergency fund is fully funded!

So start stashing away a few dollars here and there.  Just ditching the morning starbucks can fund the emergency fund with no problem!  You’ll be happy you have one the first time you have to replace your tires and can pay cash – trust me

I cannot begin to explain how angry this makes me, I’m not kidding when I say that I can feel the anger building up after reading this.  The FDIC, on a Friday afternoon with no vote, no say, no representation, from the people is socializing mortgages and making you and me pay for it.  I still live in America right?  It’s really beginning to feel like another country around here.

From the FDIC via Zerohedge:

As part of its loss-share agreement with acquirers of failed FDIC-insured institutions, the FDIC is encouraging its loss-share partner institutions to consider temporarily reducing mortgage payments for borrowers who are unemployed or underemployed. This program will provide additional foreclosure prevention alternatives to these borrowers through forbearance agreements that will give them an opportunity to regain full employment and avoid an unnecessary foreclosure.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures. This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less,” said FDIC Chairman Sheila C. Bair. “This is a win-win for the borrower, who can remain in his or her home while looking for a new job, and the acquiring institution, which continues to receive payments on the loan. Ultimately, by reducing losses under our loss-share agreements, this approach helps reduce losses to the FDIC as well.”

The recommendation to loss-share partners applies where unemployment, or underemployment, is the primary cause for default on a home mortgage. In such cases, the FDIC is urging its loss-share partners to consider the borrower for a temporary forbearance plan, reducing the loan payment to an affordable level for at least six months. The monthly payment during this period should be established based on an affordable payment – given the borrower’s circumstances – and it should allow for reasonable living expenses after payment of mortgage-related expenses. The reductions in mortgage payments during a temporary forbearance period are not covered losses under the loss-share agreement with the FDIC, though losses incurred from subsequent permanent loan modifications are covered. If the home preservation efforts are ultimately unsuccessful, losses incurred in subsequent foreclosures or short sales also are covered losses.

Acquirers of failed insured institutions who agree to a loss-share arrangement with the FDIC must abide by the FDIC Mortgage Loan Modification program for assets purchased from the failed institution. The program’s objective is to modify the terms of certain residential mortgage loans to improve affordability, increase the probability of performance, allow borrowers to remain in their homes and increase the value of the loans to the FDIC and assignees. The program provides for the modification of “qualifying loans” – those that meet certain criteria – by reducing the borrower’s monthly housing debt to income ratio (DTI ratio) to no more than 31 percent at the time of the modification and eliminating adjustable interest rate and negative amortization features.

Zerohedge says it best:

o there you have it – yet another wealth redistribution program courtesy of a late Friday release by the administration. Money flowing from taxpayers, stupid enough to be responsible with their money (and, heaven forbid, to have dollar denominated savings that Chairman Ben wants to see dead not alive) end up funneling their money to the FDIC on three occasions: i) first to eat the bulk of the cost associated with any bank failure, while the good assets are covertly shifted over to “loss-share partners”, ii) to have these same loss-share partners not charge full mortgages of those individuals who, following the American dream, and the American max the credit card plan, are unable to afford living in a house, yet who find themselves in that 16.8% of unemployed or underemployed category, and iii) to foot the final bill when inevitably, after 6 months, these same individuals redefault once again.

[snip]

In a nutshell – socialism – FDIC style.

Exactly, socialism FDIC style.  Unbelievable.