October 2, 2007 (LPAC)--Pennsylvania State House Resolution HR 418--sponsored by 50 legislative Democrats and Republicans in the past week—calls on Congress to stop the national home-foreclosure "tsunami" by enacting a Homeowner and Bank Protection Act.

But on Oct. 2, the Pennsylvania Bankers Association publicly objected to HR 418. The Bankers' letter maintains at length that there is no mortgage crisis in the United States, and that the use of expressions like "credit crunch" in the public media is actually creating a crisis where there is none.

This, when 1,500 American homes per day were repossessed in foreclosure in August.

The Bankers' Association's letter to most of the signers of HR 418 is entirely written in denial of this important statement in HR 418: "The onrushing financial crisis involving home mortgages, debt instruments ... and the banking system of the United States, threatens to set off an economic collapse worse than the Great Depression of the 1930s."

The purpose of the Congressional action asked for by HR 418, is to put a "firewall" between the economy and the financial crisis, protecting homeowners, jobholders, and banks from that threatened economic collapse.

With all respect to Mr. Dan Reisteter, the PBA Vice President who sent the Oct. 2 letter, Mr. Reisteter is just not in the real world, on the evidence of assertions in his letter that the U.S. mortgage market is functioning very well but for a few bad subprime apples. Would he say that to the homeowners of Cleveland; of Detroit; of Stockton, California; or of Lancaster, Pennsylvania—who are watching mass foreclosures threaten or actually trigger social chaos? To the 20% of home buyers and sellers at home-sale closings in August who were "left at the altar" when the lender didn't show up with the promised mortgage loan? To the homeowners of all the major U.S. metropolitan areas, whose home values fell an average of 4% over the past year, and will fall by more than that over the next year?

The letter places great emphasis on claiming that the foreclosure wave is—so far—concentrated in "just" 15-20% of subprime mortgages, which are "just" 14% of all mortgages. As Congressman Gary Ackerman (D-NY) said in rebuke of such nonsensical claims, at a committee hearing Sept. 20, "15% of 15%? A blood clot may be only 1% of 1% of the blood system—and it will kill you if it isn't treated in time!"

The letter is otherwise full of assertions such as, "The loan portfolios at Federally insured banks and savings institutions are mostly untouched by the current subprime mortgage debacle." Would Mr. Reisteter say that to Citibank with its 60% cut in profits? to National City Bank in Ohio which has to lay off 10% of its employees due to mortgage loan impairments? or for that matter, to Freddie Mac, which just saw its profits drop by two-thirds from the mortgage crisis despite having no subprime mortgages in its portfolio? And what of the banks in Germany, Britain, and Australia which have already had to be absorbed or massively bailed out, on the brink of failure, by their governments or central banks, because of their investments in the mortgage securities bubble in the United States?

To say that the hedge funds and private equity funds have not dragged the chartered banks into the speculative orgy of "leverage" which is now unwinding, is to deny reality entirely, and ask elected officials and their constituents to believe outright fantasies, for the sake of "market confidence."

"One doesn't mention rope in the house of the hanged," and so the PBA's letter is psychologically understandable. But it is nonetheless, completely "out of the real world" of our economy, and this financial crisis.

Most bankers were sure they objected to what President Franklin Roosevelt was about to do in March 1933, in protecting and reviving sound U.S. banks—until he did it. The Congressional action called for in Pennsylvania's HR 418--and similar resolutions from Michigan, New Hampshire, Missouri, and other states—includes protection of Federally and state chartered banks from the massive losses flowing out of the mortgage/securities meltdown.