Prepare to Be Forgiven, Ye Mortgage Sinners


Although we waxed skeptical here the other day about Warren Buffett’s just-announced $5 billion stake in Bank of America, we allowed for the possibility that the deal will provide a handsome payoff to him no matter what happens to the bank.  B of A could implode, after all, a victim of sinking collateral values for its mortgage loans, and of litigation over its securitized-lending business.  There is also the wild card of homeowners challenging lenders in court to show clear title to properties that are in line for foreclosure. In fact, this issue alone has the ability to capsize the global financial system, since “clear title” is exactly what ceased to exist when the feather merchants of the banking world leveraged out real estate to-the-max earlier in the decade to create an $800 trillion derivatives edifice – the Mother Lode of Digital Money, as it were. All of that sum must be viewed at the moment as deflationary overhang, by the way – not to mention, a key stumbling point for those who argue that The Great Economic Crisis must eventually precipitate out as hyperinflation.

So, how do you produce even mild inflation, let alone hyperinflation, with the housing market in a full-blown Depression?  Most surely not by expanding the capacity of banks to make mortgage loans. That’s been tried to death – first moderately, then aggressively, and finally desperately — with zero success. Despite trillions of dollars worth of mortgage stimulus and supports both implied and real, the residential market looks even grimmer than it did a few years ago.  Existing-home sales fell 3.5 percent

in July despite the fact that prices were 4.4 percent lower than in July 2010. Now that’s deflation. There’s also the $6.6 trillion loss of home equity that has occurred since the onset of the housing bust five years ago. Will it ever return?  We can’t imagine how, although it’s possible that Buffett and our President think they see a way. The two have been pretty tight lately, raising suspicions that they had hatched a rescue plan for housing before the Sage of Omaha sank a pile of dough into B of A preferred stock, a fat six-percent dividend, and warrants exercisable for $7.14 a share. (The stock ended the week at 7.75 after trading as high as $8.80).

Buffett must have gotten something from Obama. Why else would he have announced a $40,000-a-plate fund-raiser for the President before the ink had dried on the B of A deal? Pretty unseemly, really. As ‘C.C.’ noted in the Rick’s Picks forum, the “Robin Hood of the downtrodden” has cozied up to the second wealthiest man in America. So what might they have talked about?  The “housing problem” for sure. It supposedly will be one of the President’s key talking points in the jobs speech he’s slated to give when his endless summer actually ends after Labor Day.  We expect the speech to mark Obama’s outward transformation from elitist to populist. As such, we can expect to hear about a plan that will purport to save homeowners rather than mortgage lenders, allowing the former to refinance loans at low rates regardless of whether their homes are underwater.  The President may even demagogue the bankers by admonishing them to get with the program in a big way.  We are about to enter the Era of Mortgage Forgiveness, you see, and it can work only if lenders find it in their obsidian hearts to favor wastrels just this once over well-to-do shareholders and bondholders  Banks and rentiers are about to take a hit, since they will be cajoled into trading old mortgage bonds for new ones that carry a lower coupon rate. Politicians will be in the line of fire too, since they might have to make some tough calls that would effectively favor deadbeats and spendthrifts over borrowers who acted responsibly.

Lying to Ourselves?

And make no mistake, that is going to be the most delicate part of any political maneuvering that purports to deal with the mortgage crisis. The New York Times would have you believe otherwise. “Many of today’s troubled borrowers were not reckless,” the Grey Lady editorialized recently. “Rather, they are a collateral damage in a bust that has wiped out equity and hammered jobs, turning what were reasonable debts into unbearable burdens.”  We are lying to ourselves if we accept the narrative that the housing boom/bust was caused by factors other than a reckless and massive collusion between borrowers and lenders.  We are all to blame, really, although it would appear that, politically speaking, the time has come for the bankers to shoulder their fair share of the housing bust.


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Comments on this entry are closed.

Mark September 3, 2011, 4:39 pm

Barry, Benny, Warren and Harry need to be jettisoned. The least painful way to move ahead is to not to play the game. Reduce your exposure, eliminate counter-party risk and become as self-reliant as possible. The only way to play this game now is to opt out and starve the machine. Let the apparatchiks stew in their own juices and wait for an entry point to capitalize on their folly. Patience will be rewarded handsomely when blood is running in the streets.

F. Beard September 4, 2011, 12:56 pm

Patience will be rewarded handsomely when blood is running in the streets. Mark

Including innocent blood?

gary leibowitz August 30, 2011, 3:55 am

These doom and gloom scenarios can be said for the horrible 70’s, yet here we are multiple boom/bust decades later doing the same comparisons. Hyper-inflation, massive deflation, abandon the paper currencies, own your own farm. Reminds me of so many different situations in our past that I must conclude I have outlived all the bloggers out there. Only kidding.

Yes we will muddle thru this somehow. Yes I even suspect a nasty stock market drubbing for as long as 8 more years is possible, with the SPX falling below 400. While some might call that the end of the world we just has a recent devilish low of 666 and survived.

Regarding taxation, I would throw my hat in with the flat tax people. On paper it has a ring of fairness to it. Not sure if it the best way to grow this economy though. Having the wealthiest individuals pay more instead of reaping the most might be a good start. Buffett proclaimed he and his financially equal buddies are paying taxes at a 50 year low. Can you say the same? Something is very wrong with that math.

F. Beard August 30, 2011, 12:34 pm

On paper it has a ring of fairness to it gary leibowitz

You are deceived. The rich benefit the most from the government enforced and backed counterfeiting cartel, the banking system. Then let them pay for it.

jeff August 30, 2011, 1:14 am

You should have labeled it in your article:
“endless obummer summer”

nyuk, nyuk, nyuk

F. Beard August 30, 2011, 12:40 am

you’re saying that the fact that the US could raise revenue (but won’t) means that the US is not broke? Rob P

The ONLY reason the US Government has to tax is to control price inflation in its currency. Nor does the US Government need to borrow either; it can simply create spend and tax (as necessary) to control price inflation.

See for more info.

Larry D August 30, 2011, 1:55 am

Odd, I thought the only reason the US government taxed was to pay for the US government expenditures.

If things are as you say, the US government could stop taxing, stop borrowing, and simply conjure the money to pay for itself. Voila!

F. Beard August 30, 2011, 2:08 am

Odd, I thought the only reason the US government taxed was to pay for the US government expenditures. Larry D

That’s a common misconception encouraged by the counterfeiting and usury class who wish to be in complete control of money creation. The US, unlike Greece for instance, can create and spend its own money.

As for taxes, they are only needed to control price inflation should the government overspend.

mava August 30, 2011, 2:43 am

Well, I agree that taxes are not at all necessary for US government to go on, however, there is another purpose behind taxes, and that is to force the slaves to use US dollars. Because it would not accept the Euros , for instance.

This was invented by the court of King Henry, who had a problem paying his soldiers with tally sticks. Merchants were not so willing to take them (just like USD in absence of taxes). So, Henry, demanded taxes to him to be accepted in tally sticks, which made merchants to accept the sticks as money, since they needed to acquire some tally stick to make their tax payment anyway.

F. Beard August 30, 2011, 10:29 am

Well, I agree that taxes are not at all necessary for US government to go on, however, there is another purpose behind taxes, and that is to force the slaves to use US dollars. mava

So long as we have government (taxes) that will be true even if we have fiat gold, fiat silver or fiat anything. If we had a government enforced PM standard it would be fiat backing the PM and not the PM backing the fiat.

The solution to the money problem is separate government and private money supplies per Matthew 22:16-22 (“Render to Caesar …”). That way the private sector could use gold, silver or anything else for private debts while paying their taxes with cheap fiat.

A combined government/private sector money supply is an abomination from a libertarian viewpoint.

Benjamin August 29, 2011, 9:28 pm

While we’re on the subject of mortgages, I would again like to point out that…

…the “safety net” program has done its fair share in hindering life, liberty, and the pursuit of happiness. But if I may play “devil’s advocate”, and suggest that it might be used to get us out of this mess…

Of course social security is broke. Still, what would be the problem of using the fund to pay off/down the mortgages of people who are still owed by the program?

No, it wouldn’t save social security, the banks, nor even regular people (probably not, anyway). But from that point it could be better ascertained which mortgages are payble vs those that are not.

From there, market value can correct. And once that happened, a full or partial refund of ss “money” could be given to those found to have paid over market value for their house. So they would be able to wipe out their debt, in part or entirely, and receive back some money owed them by the program (which at the least wouldn’t leave them totally up the creek without a paddle).

But most of all, this whole “economic” debacle could be put behind us, as well as a bad-from-the-start program being successfully ended (without having to do so much money printing or allowing government to outright default on the obligation). The market could correct with less pain involved while the first domino of meddlesome government was brought down. And from there, it could only get better as each domino fell!

Ah, but TPTB wouldn’t want anything like that. Nothing in it for them! Or would there be? I mean, they do value their un-tarred, un-feathered, and low-sodium lives, don’t they…?

F. Beard August 29, 2011, 10:55 pm

Of course social security is broke. Benjamin

That’s a lie. The US Government can ALWAYS meet debt obligations owed in the currency it creates. Plus those benefits have been paid for by a highly regressive tax.

Rob P August 30, 2011, 12:22 am

So Beard, you’re saying that the fact that the US could raise revenue (but won’t) means that the US is not broke? That sounds like a lie.

Having the theoretical power to do something if enough fearless leaders acquiesce is not the same as doing the thing that one has that supposed power to do. Show me some action by Congress to print money and then we can follow up on your line of thinking. Otherwise, you’re stuck in the land of can, should, would (the present tense of could’ve, should’ve, would’ve or today’s jargon coulda, shoulda, woulda).

Benjamin August 30, 2011, 1:48 am

You should wear a bell, F Beard. Anyway, I didn’t read your post beyond your calling me a liar. Aside from the rudeness of calling someone a liar who isn’t lying, it’s hard to take you seriously on what calling me a liar implies about social security.

F. Beard August 30, 2011, 2:04 am

Aside from the rudeness of calling someone a liar who isn’t lying, it’s hard to take you seriously on what calling me a liar implies about social security. Benjamin

I wasn’t calling you a liar. But you are repeating a lie and endangering the old and helpless in the process.

Think about it. The banksters ruin the economy and suddenly we got to throw Grandma out on the street even though she paid into SS all her life?

mava August 30, 2011, 2:52 am


I don’t like your idea at all.

I don’t have any mortgage debt, because I acted responsibly, and did not contract any debt I couldn’t pay. Contrast me with all those wannabes who “needed” to buy a mansion they could not afford, in order to cash in on price appreciation expectations.

Now, I, as any other slave, am taxed for the socialist security forcefully. I would really want to cash it all out now, before the inflation eats my social security contributions away.

According to your plan, all the irresponsible gamblers will be able to cash out their contributions, while mine would still be stuck in the system!

How is that fair? Shouldn’t the responsible ones among us be able to cash out their social security contributions first, and the gamblers be forced to wait for the nominal value “benefits” after the inflation made them ridiculous?

mava August 30, 2011, 2:55 am

should read:

“, and the gamblers be forced to wait for the nominal value “benefits” after the inflation, which was created to pay for their profligacy, made the nominal value ridiculously useless?”

Benjamin August 30, 2011, 4:36 am


“According to your plan, all the irresponsible gamblers will be able to cash out their contributions, while mine would still be stuck in the system!”

I never said any such thing. But supposing I did…

Why get upset over having your money later vs earlier? Per your own words, you don’t need it as soon as others do.

However, and quite naturally, those without any debt wouldn’t have anything deducted at the time everyone was paid back. And while it would be devalued money, you’d have more of it than the typical debtor would.

So I would say that savers were being given the upper hand, not the muddy end of the stick.

Benjamin August 30, 2011, 7:18 am


“, and the gamblers be forced to wait for the nominal value “benefits” after the inflation, which was created to pay for their profligacy, made the nominal value ridiculously useless?”

I can see you have some catching up to do, in order to understand where I’m coming from…

First, we’re talking a finite amount of money that needs to be repaid. There is not enough SS obligation in the trust to cause hyperinflation. As for run of the mill inflation, inflation is not really the problem. I’ll show you where the problem is, in a minute. For now, here’s how the plan I mentioned might work…

Supposing your SS withheld can only cover 40% of your mortgage. Not wanting to leave everyone high and dry, let’s say that that particular debtor could keep
40% of the money paid back to them, with the bank having to accept 60% of it to retire the debt.

Further suppose that that were the average payback/default rate. Yes, the banks would have more money to spend/lend, but with less reason to do so. People would also have less money with which to borrow against. And if it were the other way around (60/40 say), banks would be forced to lend less in order to cope with the mild inflation (if any) that people caused through increased spending and borrowing.

So inflation of money supply is not where the problem lie. In a sane world, it would handle itself. And as I pointed out in the linked post, people being allowed to keep their money was never the cause of housing inflation. Credit was. And there was so much credit because banks desperately tried to make more loans on top of ones that were destined to default. So it really comes down to rule-breaking. And rules were broken because government needed to create the impression that Big Government was never going to break us. Banks complied, knowing that they wouldn’t be the first in line to be hurt.

Thus we get to the mother of all points. Another rule that has been long ignored is not the “curse” or “stupidity” of inflation. Inflation is natural. It is destined to occur. Even with the use of gold and silver money, inflation is a given (dollars can always be re-weighted to allow more money to be created). The problem with inflation is not inflation, but rather who has the power to make it happen.

We already know that governments make a poor choice when it comes to managing money supply. And as Thomas Jefferson said of bankers, it just doesn’t work to have a private entity manage the dollar. God apparently doesn’t want the job, so where does the power rightfuly lie?

The market, that is, the people. And who has the power is EVERY bit as important as the medium used as money. Gold and silver money without market control over currency supply would only make us subject to the “divine right of kings” that would decide things in favor of itself (market demand be damned).

But with the power over money supply in the right hands, savers would never be hurt by inflation. Whatsmore, the majority of people would definitely save a % of their gold/silver weight in order to have 50% more dollars, ten years down the line (or whatever future dollar re-weightings would be). And with that, the need for the very kind of government and central bank that is driving everything into the ground would be GONE.

So if you’re really concerned about how inflation would affect you, worry more about who has the power to inflate, rather than the inflation itself. And realize that the people owed by their government are not your enemies at all. Government is your enemy. The Fed is your enemy. The monied interests and elitists are your enemies. But if you would rather fight to keep your allies in debt and devaluation Hell, then you’re quite simply one with the enemy. Whatever you decide is right…

What I suggested was a means to bring about a much needed breather in this collapse. If people are paid back what they’re owed (minus some percentage, for their mortgage, if any), then they can buy gold and silver. And if not, then at the very least we get a breather from the collapse. With so much private and public debt removed from the system, and with one giant program brought to an end, things would be bound to pick up, and thus allow you to make up for any damages caused from the disruption.

mava August 30, 2011, 4:41 pm


SS fund is a violently collected heap of money, designed to promote the government welfare at the expense of the people. Lets start with that.

No one, I repeat, NO ONE wants to give their money away to a fund that is a hedge on her/his death. If anyone wanted to, then there would be no need to collect it violently.

Even if I don’t die before retirement age, the government is going to return me only nominal payments, thus AI would already lose out on inflation.

It looks as if you are not aware of the reasons SS was instituted (to steal money), just play at the inflation calculators to get the idea.

Like anyone else, I do wish to cash it all out as soon as possible. You may keep your money in this racket, if you so desire, but I have stated mine.

Now, your plan, economics of the entire country be damned, allows the profligates to cash out and to come ahead of those who were responsible. That is the problem.

At a minimum, you should then allow the responsible ones the same cash out if they so desire.

Terry S August 29, 2011, 8:35 pm

Yesterday’s market crash was one which largely affected rich men, institutions, investment trusts and others who participate in the stock market on a broad and intelligent scale. It was not the margin traders who were caught in the rush to sell, but the rich men of the country who are able to swing blocks of 5,000, 10,000 up to 100,000 shares of high-priced stocks. They went overboard with no more consideration than the little trader who was swept out on the first day of the market’s upheaval, whose prices, even at their lowest of last Thursday, now look high in comparison. New York Times, Oct. 29 1929

Mark A August 29, 2011, 8:18 pm

I read this and I thought it fit in Nice with Ricks Observations….

The primary problem we have is highly concentrated liquidity in the hands of the biggest risk takers in the market, and the same hands that no longer really need it. The junkie went into withdrawal, so instead of dishing out the tough love or demanding a stint in rehab, central banks simply dished out more heroin.
The Fed was very, very fast to swap crap at par in exchange for cash (liquidity providing), but there is no way to reverse this. The cure for QE-induced problems are repos, but nobody in their right mind is going to do the reverse trade at the original price because everybody knows how crap that stuff is. At the best, the Fed can swap back some high quality stuff (TYSs), but it’s stuck with a lot of the toxic ABS. If a repurchase is going to happen, then the counterparty will only be prepared to pay real market value, meaning the Fed has to take a huge write-down which is exactly the same as turning existing, supposedly sterilizable injection into non-sterilized inflation.
Either that, or it pushes the loss off its books onto the Treasury and asks taxes to pay for it, socializing bank losses. In the latter case, the effective inflation is basically the same because the real economy must deflate to cover losses (as taxes are taken in) meaning that the relative state of the real economy and the ponzi finance economy is the same either way: banks get richer, society gets poorer. An example of this happening is the govt recently asking for ideas to deal with the large inventory of defaulted upon homes underpinning toxic MBS. Part of that is the Fed looking for an “out”. A way to push shitty assets back to the GSEs / government.
In the subsequent environment, banks use their position of greater relative wealth to purchase firesale assets from the real economy, coming to own more of the real world. The only other option is to go Japanese and sit on that stuff forever in the hope that bubbles eventually regrow and repurchases can be conducted at the original price. It might take 20 years, more likely, it will never happen at real equivalent value (maybe nominal, but then that’s actually inflationary if you think about it).
Absolutely none of this is under democratic review by the masses. It’s 100% pure, unadulterated oppression, the very opposite of the “freedom” that Americans are lied to about on a daily basis and sadly seem happy to parrot back.

fallingman August 29, 2011, 8:14 pm

Warren Buffett … what can you say about the man that hasn’t already been said about hemorrhoids?

F. Beard August 29, 2011, 6:35 pm

We are all to blame, really, although it would appear that, politically speaking, the time has come for the bankers to shoulder their fair share of the housing bust. RA

There is no need for the bust to continue:

1) Put the counterfeiting cartel out of business by forbidding any further “credit” creation pending fundamental reform. Genuine loans could still be made of existing money.
2) Send monthly and equal bailout checks to the entire population, including savers, equal in total to the amount of credit paid off the previous month. Continue until all US private debt is paid off.

The above, since it keeps the money supply constant, should not cause serious price inflation. Spending would probably pick up but new credit driven bubbles would be impossible.

As for fundamental reform, the government needs to get out of the private money creation business and simply create, spend and tax its own fiat per Matthew 22:16-22. The private sector would provide its own money solutions. However, without government support, it is doubtful that fractional reserves and even usury could survive to any large degree. Good riddance!

digger August 29, 2011, 6:34 pm

If I’m blamed for this crisis one more time I’m gonna do something I regret! The banksters, fraudsters, politicians, the wall-streeters, and the big time gamblers in finance are to blame. Time to send them to jail!

I pay my bills, my taxes, and play by the rules and this is what I get. Time to stop playing by the rules!

stolp August 29, 2011, 5:35 pm

Sorry, that last comment was addressed to Dan,,, pardon Robert?

stolp August 29, 2011, 5:34 pm

Bravo Robert, Yes 1984 came and went and you had to know it “happened” when all the news media pointed out that it didn’t…. Yes, can you spell “Newspeak”.

stolp August 29, 2011, 5:28 pm

I would reply “Red”, that certainly FOXNBCCBSABCCNN, is simply a propaganda tool to support the status quo, which I would think, you would oppose. NPR is at the very least offering a small, indeed very small, voice of opposition and fairness. The joke is that the corporate “cheerleaders” are taken seriously at all! As an example, why is there no serious opposition after all these years to these wasteful and illogical foreign wars? Does anybody out there seriously think they make this country SAFER?
As for the situation regarding underwater mortgages, surely RTC can not be far behind?

Larry D August 29, 2011, 5:40 pm

Why does NPR accept corporate sponsorships?

redwilldanaher August 29, 2011, 6:24 pm

I suppose we simply disagree stolp. NPR is a joke along with the rest of the lot IMO. If it were truly “liberal” as in “free thinking”, it wouldn’t be the Statist Network that’s preferred by 4 out of every 5 career statists. NPR tends to feature academic shills that are owned puppets as opposed to the the under minions of the puppet masters that are featured on the other propaganda outlets, however their interviewees are puppets nonetheless that receive “funding for research” from the hollow shells that puppet masters construct for just such purposes.

With respect to the foreign wars, hmmm, I don’t know but I recall a time wherein the networks had it that “conservatives” were isolationists. What happened to that label? I guess it doesn’t apply anymore since both parties of finger puppets get their marching orders, more or less, from the same disparate band of psychopaths that run this biodome.

Of course some people think that these wars make them safer. Psyops and mass behavior modification have seen to that. If you notice, most people have “tuned out” the foreign wars hence we’re always at war so no one really takes notice or cares much anymore. They’re too busy trying to stay on the treadmill that’s being pulled out from under them.

There’s really nothing new here. Milk for as long as possible, when it becomes apparent that the milk is drying up, create a crisis and then solve it. Repeat.

Robert August 29, 2011, 5:23 pm

RA: “since “clear title” is exactly what ceased to exist when the feather merchants of the banking world leveraged out real estate to-the-max earlier in the decade to create an $800 trillion derivatives edifice – the Mother Lode of Digital Money, as it were. All of that sum must be viewed at the moment as deflationary overhang, by the way – not to mention, a key stumbling point for those who argue that The Great Economic Crisis must eventually precipitate out as hyperinflation.”

-Au Contraire, my wizened compatriot. What you see as debt that must be paid off with real money, others see it as debt that will instead be converted from “digital overhang” into currency overhang. Debt can either be paid, or it can be monetized by counterfeiters. Either way, Gresham’s law seems to remain intact.

RA: “So, how do you produce even mild inflation, let alone hyperinflation, with the housing market in a full-blown Depression? “

-“Inflation is always and everywhere a monetary phenomenon.” – Freidman and Schwartz. The these two countervailing points must be resolved against each other. Housing markets MAY be depressed due to the unwillingness to bond oneself to a mortgage (although the below mentioned supply glut is most certainly a contributing factor as well)

“Existing-home sales fell 3.5 percent in July despite the fact that prices were 4.4 percent lower than in July 2010. Now that’s deflation”

– Is it? Or could it possibly be price disruption due to a supply glut of available homes, combined with a population that has no desire (nor interest) to take on additional debt? True deflation occurs when money supplies are decreasing. One look at the Fed’s stats on that will tell you all you need to know about that.

mava August 29, 2011, 8:20 pm

RA seem to understand the term “Deflation” as in fall in prices. This is a valid definition, meaning that it is in the dictionary, although it has absolutely no economic meaning.

That is what I getting too, about Rick.
Consequently, if he argues within those terms, then of course, he is right, there is was, and will be deflation every given day in some sector. He is also right then that it is hard to impossible to create “inflation” (rise in prices) if there is an existing “deflationary overhang”.

I am cool with that. Except, I wish folks would specify which definitions of such double meaning terms they are talking about.

Robert August 29, 2011, 8:41 pm

Falling prices are not deflation…

Is the PC market in deflation? PC prices are falling.

mava August 30, 2011, 2:09 am

Yes, according to modern definition, PC market is deflating. So is say LCD TV market.

the act of deflating or the state of being deflated.
Economics . a fall in the general price level or a contraction of credit and available money ( opposed to inflation).
the erosion of sand, soil, etc., by the action of the wind.

Original economic definition of the term had only quantity of money implications. But, that is the thing with knowledge, that it shows you where exactly you are being scammed.

It so it came to be that the bankers, through hired guns of PHD in economics that they have placed in universities chairs, have added the implication of prices to the definitions of both inflation and the deflation. With this made, the PHDs started to tech students to use price definitions exclusively, although they themselves were ready to whip out real definitions if pressed into a debate.

Today, almost no one knows what deflation properly is, and therefore almost no one can understand how they are being scammed.

I do not doubt that Rick does know both definitions and the difference between them, but I have to admit that it is still confusing to read him, as he does not clarifies which meaning of the two he implies in this or that article. I think he mostly is interested in price-related definition, and so when he says “deflation is coming”, he means the prices will fall and not “the TMS will fall”.

If he is reading this, he might correct me if I am wrong?


Falling prices and wages are incidental to the debt deflation I’ve been writing about (in Barron’s, the San Francisco Examiner and elsewhere) since the mid-90s, Mava. It is the inevitable implosion of an $800 trillion derivatives bubble that will precipitate deflation at full strength. For the time being, though, the process has been arrested by Fed subterfuge entailing the “warehousing” of mortgage paper that largely collateralized — still collateralizes — the bubble.

However, if the next phase of the bailout lets us all re-fi at very low rates with low transaction fees, it will further postpone the Big Bust, perhaps for years. This is probably the best political option available, and although I am not exactly an Obama supporter this is one plan I would support. The bondholders won’t be happy, but it won’t saddle them with huge capital losses; rather, it will simply reduce their coupon income over a prolonged period.


Robert August 31, 2011, 1:39 am

The PC market is NOT deflating…

Demand for PC’s is still brisk. Sales are not declining, nor is total revenue:

Only PC prices are falling.

dan August 29, 2011, 5:17 pm

All bank REO’s will be pooled into HUD and given to the DREAM ACT participants as a reward for using the government programs for higher education and food accumulation….minimal rents ie. subsidies set by freddie will be collected at years end as you complete your 4 years of schooling…Upon same you will be enlisted into the Armed Services and used for the betterment of society as the HSD sees fit….upon ending your ‘hitch..2 years you will be returned to the USA be enrolled into a retraining program for a job that Americans do not want to do…upon completion of this enrollment 3 years…you will be…given all the hardware and tools needed to work from your home,as you are needed…you will be paid a stipend as set by law from the congress….this is above the various subsidies you will receive for food, shelter and clothing…..and none of these benefits will be taxed…as you can see this is a very rewarding program that you will be afforded let all of your friends and relatives know they to can enter..there is only one requirement to become eligible for entry…you must vote democratic or republican …and vote for the same incumbents that are offered..enjoy the American DREAM ACT… YOU HAVE TRAVELED A LONG AND HARD ROAD …SO WELCOME TO THE LAND OF YOUR OPPORTUNITY…AS MANY HAVE TOILED AND LABORED TO MAKE THIS POSSIBLE FOR YOU …THROUGH THEIR ELECTED OVERLORDS…

DanX August 29, 2011, 4:51 pm

“All of that sum must be viewed at the moment as deflationary overhang, by the way – not to mention, a key stumbling point for those who argue that The Great Economic Crisis must eventually precipitate out as hyperinflation.”
I not sure — Is this true as long as the banksters are allowed to hold those assets as mark-to-fantasy, and then payoff enough judges to slam through the foreclosures without any consideration of due process so the banks can then bulldoze the surplus homes in order to create an artificial shortage in the housing market. Considering that the congress, administration, the judiciary, and government regulators in this country are essentially bought and paid for, it wouldn’t surprise me. I don’t think that would end up being deflationary? But considering a “good job” in America for our new college graduates is working as a manager at 7/11 or McDonlds (if they can find a job at all), I’m not really sure who’s going to be able to afford to enter a newly “inflated” housing market anyway if “Da Boyz” get there way. So maybe it continues to be deflationary? Don’t these parasites understand that when they kill off there host (middle class consumers) that it’s probably at there own demise.

Steve August 29, 2011, 4:56 pm

Dan, a maggot does not care until the host has died, the flesh has rotted, and there is nothing more to eat.

mario cavolo August 29, 2011, 5:09 pm

It will be their own demise, sort of. They will have plenty of assets even after the next disaster, whatever it may be. If you’ve got 2 million and lose half, hey you’ve still got a million…

gearup August 29, 2011, 3:06 pm

It’s a signal that interest rates are more than likely to stay low for the duration of his $5billion investment

The government debt burden is too big to let rates rise, otherwise servicing the debt becomes an expanding millstone around the country’s neck

mario cavolo August 29, 2011, 3:52 pm

geared up long ago on that point gearup…

Say Goodbye To Yields at

DG August 29, 2011, 5:01 pm

Maybe they will remove the mortgage interest deduction simply by driving the interest rate to nearly zero….
sweet. No change in tax policy necessary. No political damage as there will be no votes.

Think of all the additional tax revenue! oooops. right. How is poor B of A supposed to pay Warren 6% when they can’t make anything remotely close to that lending it out near 0?
What’s the point of banking?

Exactly. Go ugly early, beat the rush, and get out of debt. The only prudent decision is to play defense.

rmsimc August 29, 2011, 5:24 pm

“How is poor B of A supposed to pay Warren 6% when they can’t make anything remotely close to that lending it out near 0?”

Using this new capital and applying the allowable leverage rate, BofA can borrow another $45B at 10 bps and lend all $50B to UST at 215 pbs annual return. BoA nets $750M after interest expense (incl. BRK’s 6%). Easy money!!!

Rich August 29, 2011, 6:28 pm

Hi Mario:
Your link got a 403 Forbidden Referral Spammer message…

mario cavolo August 29, 2011, 6:41 pm

Rich, good grief thanks kindly for the heads up… I let my web guy know to check out what’s up…. I suppose you could get there if one just went to the main homepage first in the meantime….

stolp August 29, 2011, 2:35 pm

The problem with most of these folks who reference the “liberal media” card; is that they have never really lived in (or visited), it seems, countries that have an active and strong liberal, (as well as Conservative) media…. such as France, England, etc. While most of these references are by people who think of themselves as Conservative (Big C.), they are in fact cynical (little c). The classic conservative thought of the 2nd half of the 20th century has been replaced by people who are really opposed to the very concept of a society in which the government has any business at all in promoting an equitable and fair society in which the majority can prosper. These people should rightly be called “Cynics”, as they seem to know of, or have access to some large media existing beyond the control and ownership of large corporate conglomerates? Where is this media in the U. S.? Perhaps they are referring to National Public Radio which is funded in large through charitable donations of it’s listeners, interestingly enough. Little did I know that my favorite information source had such power and influence…. I’ll sleep better tonight!

Steve August 29, 2011, 4:54 pm

Propaganda works because persons do not want the truth, but; in fact deception.

redwilldanaher August 29, 2011, 4:58 pm

Exactly Steve. Most claim to want the truth but in reality they prefer an alternative that conceals the truth yet tastes a lot better going down. NPR is a joke inside of a joke inside of joke… and so on.

Benjamin August 29, 2011, 5:34 pm


Mind your Cs and cs when you reference someone like me (I presume, since I raised the liberal media point, which wasn’t meant to be a big deal as it turned out to be). Government has its place in our lives, but only in as far as the Constitution allows.

And since you don’t need any fingers or toes to count the number of mainstream media outlets that look at it that way… That’s liberal media.

Bullwinkle August 29, 2011, 8:48 am

Hey Rocky, Watch me pull a rabbit out of my hat …(GRRRR…) Ooops, wrong hat!

Benjamin August 29, 2011, 7:56 am

Well, let’s see… Obama’s approval rating is below 40%. And dropping. WB, who happens to support Obama, makes a sweet deal with BoA…

But hey, it can also be that WB sees an undervalued treasure in the technicals/fundamentals of a really great bank. In fact, it has to be that because the guy’s a _billionaire_! And who else but a billionaire would overlook the things that all the knuckle-dragging, slope-browed investors get hung up on?!

And yet, how much of an impact can this vote-securing scheme get? I seem to recall that many of the newly built McMansions just sat there, dark and uninhabited. And how many debtors have walked away already?

Obama is no populist. But if he can make himself look the part, there is a liberal media out there all too ready to play to that tune. So you see, His O-liness has done it once more, by single-handedly saving countless millions of Americans from losing out to the big banks (even though the big banks are the main beneficaries in this scam).

You know what? The practice of tarring and feathering needs to be revived. Then, make the scammers and schemers walk the plank, into their cold saltwater baths!

MrJones August 29, 2011, 10:14 am

“a liberal media”. Are you on the same planet as the rest of us. That is a laugh. Obviously you wouldn’t know a liberal media if it bit you. Because if you did would know there is absolutely no liberal media left in this country. How I wish there was.

Steve August 29, 2011, 4:52 pm

Ben, are you a magnet ? Or, in other words; does clear reality attract opposits like the poles of a magnet ?

Benjamin August 29, 2011, 5:19 pm


If I had an Eagle for every person that told me what a blind idiot I am..!


More like a compass… I have to seek out north because that’s how I’m made. So are the Joneses compasses :-) . The only difference between us is they don’t dig the experience!

Larry D August 29, 2011, 5:36 pm

Mr Jones.
Have the NYT delivered to your abode. Evidently you didn’t realize that this last cornered holdout of liberal sensibilities is still in business. In my town the clear thinking Franken voters prefer it over the local lefty rag they regard as too provincial, as did he.

SD1 August 29, 2011, 6:49 am

Seeing as we’re speaking of elitism and cronies ….. How is China any different?

Mario cavolo August 29, 2011, 11:03 am

Certainly SD1….Elitist rich guy cronies are certainly here in China making themselves richer, too.

There is a particular difference which exists for a number of well-known reasons; that the middle class is in a rising, improving sociology-economic growth cycle in China-India-Asia while as we know it is declining in the U. S. …. It is a painful, distressing stark reality to acknowledge.

Cheers, Mario

Jill August 29, 2011, 5:40 am

Mario, I think this is the article you were referring to above.–but-not-for-you.html

John Jay August 29, 2011, 5:56 am

I actually came out of my political retirement on this one. I sent an e mail complaint with that link to my Congressional Representative. I expect a response similar to the one another citizen received when he asked his Congressman why the US had not begun a conversion to methanol from gasoline like Brazil.
His answer: “What’s methanol?”

mario cavolo August 29, 2011, 6:05 am

That’s it!! Thanks!

mario cavolo August 29, 2011, 6:13 am

What I’m envisioning here is a repeat of Medicare fraud which is rampant on every conceivable level. Fake billings, overbillings, people lying about their assets and financial state.

So these vulture funds are going to create the new socialist America agenda; be the new source of rental housing for 50-100 million screwed over Americans. If they decide to do some kind benefit/discounted rent program, which will match up nicely with the foodstamps program, then this new housing rental program will also be riddled with fraud.

By the way, I used to like Warren Buffet, whatever the heck that even means. Now I suddenly realize he’s just another goddamn elitist rich guy making better deals for himself and the other rich cronies…must be nice.

Rich August 29, 2011, 6:24 pm

It appears the USA and current corporate national socialist administration are adopting the government housing plutocrat model that produced tower after tower of bleak decaying apartment buildings in Soviet countries, including Czechoslovakia and Russia, once thriving economies before the bolsheviks took over the bloated Saint Petersburg treasury with the Labour, Liberal, and Constitutionalist factions with eerie parallels to today:

Paulie August 29, 2011, 2:55 am

We should have let every single bondholder that was holding trash lose every single penny they deserved to lose because of their poor investment!!! Rather, we bailed them out to the tune of $13+Trillion of taxpayer’s money and rotted future currency value. The better thing to do if we were going to spend/print that kind of money would have been to “forgive” the debts of the entire USA citizenry in some formula that would have caused mortgages, car loans, student loans, credit card debt, etc, in that order to be “erased” by that sum and declare a sort of “jubilee” that re-set the wealth of the people from a “debt-standpoint”; then, we’d have to re-evaluate how debt is granted, by requiring down-payments that are resonable and cancel credit cards/availability, etc. What we now have is a decimated, tapped-out skeleton middle class that is struggling to feed itself while it pays down a crushing debt burdon, as the Fed/Treas litterally devalues their money as they suffer. This will certainly end poorly. Perhaps the coming bank holidays will be longer than imagined after the panics begin to grab cash from the banking systems throughout the world. Maybe we’ll have to re-issue the currency at a ratio of what is in circulation to re-value the system of monetary exchange at the same time we peg this new money to some value of hard assets of some sort. Surely it won’t be purely a gold standard…as the private debtors will end up taking the public gold hoard in exchange for the paper that is now worthless. Imagine the debtors of Italy simply offering to “forgive” all their debt if the Italians hand over their country’s gold reserves to the bondholders!!! Say goodby to thousands of tons of the “barbaric” metal that took eons to build up. Say hello to national poverty and indentured servitude. The same deal might be offered in the US, where the lizard banks would offer to exchange the gold, (if it isn’t already leased somehow…), for their paper debt instruments. Imagine 8000 tons of gold being transferred to private hands to absolve the government, temporarily, of their crushing debt. It might sound crazy, but, crazier things have certainly happened. All debt must be repaid…unless you’re a well positioned bank/investment fund that received taxpayer bailouts instead of suffering the “capitalistic” fate that a poor investor should suffer. I nearly puke when I hear the word “capitalists” bantered about on the financial stations such as FoxBus or CNBC. We’re a statist-facist financial system now, having bailed out bondholders with Trillions of taxpayers dollars. There was NOTHING “capitalistic” about that bailout and it was instructive as to how the government and the monied interests are in collustion and totally corrupt. There is barely a capitalistic bone left in our corpse. Stick a fork in the USA, and the rest of the world is already rotting flesh. Get ready for some really interesting financial times.

Carol August 29, 2011, 4:08 pm

Lovely just lovely, and how do you think people like me should be treated? I had/have no debt. I learned early in my life to live well below my means. So I worked my ass off and paid cash for my “things” and live in small older homes instead of buying into the McMansion “dreams”. So now all those spendthrifts get rewarded for their stupidity. Just lovely!

Steve August 29, 2011, 4:47 pm

Carol, ‘they’ do not care for you and me, as debt is the means in order to slave. You are hated Carol and surely you shall be punished.

redwilldanaher August 29, 2011, 5:13 pm

Great closing paragraph Paulie.

Once again, in complete agreement Steve. They’ve erected a “department” for nearly everything in DC but they outsourced the creation and care of the currency to another organization? Hmmm… So something they theoretically could have handled, they passed on. It seems like they’d be able to run a printing press for themselves so why… Oh right, they needed a partner to collect proceeds on the money creation. Endless Income from the endless debt of others/everyone else. Someone else need to create the debt and profit from it which is the reason for the very existence of someone else.

mario cavolo August 29, 2011, 2:53 am

Morning All,

Fabulously spot on Rick…I was just reading somewhere that the whole shebang is going to be sold off / privatized to vulture funds who will be able to snap up the property garbage portfolios from the banks at steep discounts to then get in to the rental business at normal market rates, wow sweet, and that such a deal is certainly not going to be accessible to the public….darn, where the heck was I just reading that article…??

As there has been this BAC wild deal, in a sort of related note about EK being followed here, I find EK sitting there quietly in the $2-3$ for the last couple of weeks a bit eery. I had sold previous calls for a double, nice, but sitting here looking at it, perhaps a reminder on the idea that a they must be working furiously on a deal that will one day get announced at a price quite far north from current….such musings are purely speculative…

Cheers, Mario

Rich August 29, 2011, 6:13 pm

Aloha All, JJ, Mario
Private vulture RE funds were quietly buying up properties for at least three years now, and so far they bought down into the abyss.
It does not hurt the blue whales to have cash or ZIRP finance to outspend little consumers and taxpayers, as this 2009 NYT article described:
Bob Chapman International Forecaster is one analysts describing how big smart money pooled its cash with sweetheart insider government taxpayer financed deals to snatch properties off the market closer to the bottom, then expects all the economic pump priming at taxpayer expense to reinflate the economy and their bottom lines.
We shall see in the fulness of time.
As Rick points out, $605 or $800 T in derivatives can be a powerful deflationary force until they are productive, regulated and transparent.
The flight out of debt IOUs into equities and real assets may be just beginning.
Meanwhile, we are enjoying the BAC/WS/B ride from 54 cents on M 8/8/11 to a new high @ 1.33 today…

SD1 August 29, 2011, 2:43 am

I said it before (July 22nd) and I’ll say it again. “Maybe corporate America knows something we don’t? That sitting on a mountain of cash isn’t the threat we have been led to believe?”

I don’t pretend to know.

It seems to me, though, that much of corporate America has a lot more faith in this country than most of us.

That’s not saying much, of course, given corporate America’s penchant for auctioning off work to the lowest bidder.

Don’t be too hasty in selling the powers-that-be short, however.

Like it or not, the PTB are there for a reason.

We have but one objective: play their game or get eaten for lunch.

Erin August 29, 2011, 1:51 am

I am guessing that the statement about the bankers expected to shoulder some of the losses in the mortgage mess was intended not to be funny?

That caused quite a laugh on my end. Any monies lost will immediately be pasted back on the balance sheet in some form by you and me and the rest of the taxpayers thanks to the fed.

It was not very long ago that they were so important that we needed to save the system and keep them solvent. What has changed now except that we are now deeper in debt and more reliant on easy money?

Seriously, the longer this movie goes, the better it gets because the ending is going to be epic and it is exactly what the people voted for…Over and over and over.

warren August 29, 2011, 1:32 am

There is only one who can forgive. And to begin with, He wouldn’t have charged any interest at all.

John Jay August 29, 2011, 1:30 am

I think the uber wealthy are working out the housing endgame right now, and will let DC know their wishes when they do. Already there are plans in the works for the government to sell bundles of their REO to their overlords in bulk at fire sale prices, leaving the original, worthless mortgage paper to you and me at Fannie/Freddie/ FHA/HUD/VA, quite a scam.
After the proles are through paying an ever increasing portion of their wages for food and energy, they will be happy to live in government section 8 housing, with the rent money going to the new owners of the former REO.
I guess DC will keep the Zombie banks alive somehow, not too hard to do with ZIRP money and toxic debt given to you and me. So a three tiered housing market, those who own outright, those who can cover a mortgage, and the renting class, with any section 8 payments going directly to the new Feudal Land Barons.

mario cavolo August 29, 2011, 2:55 am

a perfectly formed picture of what’s coming, so what should we buy or short :) ?


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