Why America’s Bailout Won’t Look Like Greece’s

Americans can take comfort in the likelihood that the showdown between mortgage lenders and homeowners will not resemble Greece’s battle-to-the-death with its creditors. In the U.S., the banks are slowly losing ground to a populist, election-year tide that eventually will force lenders to accept a moratorium on mortgage debt for tens of millions of homeowners. In the rapidly escalating legal battle to bring this about, last week’s $25 billion settlement between the banks and the U.S. did not settle much of anything, since the banks in theory can still be sued into oblivion by aggrieved homeowners. The plaintiffs will be claiming in effect and with a straight face that they got in over their heads because lenders forced them to borrow more than they could repay. Who would have imagined just a decade ago that an army of reckless borrowers would seek the protection of the courts under the remorseless deadbeat’s battle flag “Kick me, beat me, make me write bad checks”?  That’s what it’s come down to, evidently, and woe to any bank that asks the court for help in turning a family out onto the street. The five big banks that signed onto the deal are undoubtedly running scared, since the legal latitude afforded those who could conceivably claim “questionable lending practices” has been widened to include just about anyone who lives in a home – including, presumably, tens of millions more homeowners who  are not yet underwater but eventually will be. Keep in mind that the costs of the yet-to-be-unveiled Homeowner Bailout Act of 2014 have already been socialized, since the GSEs have been originating 90% of all new mortgage loans.

Contrast this with the increasingly dire situation in Greece, where lenders, backed by a docile and ignorant press, are still able to pretend that they have the upper hand. They made quite a show of this over the weekend, holding up the bailout money for Greece until the onerous terms of a paltry 130-billion euro loan are ratified by the Greek parliament. The idea was to bind future Greek leaders to the severe austerity measures on the table. While the wrangling continued on Sunday, a headline atop an Associated Press story shouted a dubious claim being made by Greece’s leaders – that the Cuts Will Avert a ‘Social Explosion’. More likely is that the cuts will briefly postpone the country’s collapse into a generation of penury. What would happen if Greece were to default?  The following, according to the nation’s prime minister, Lucas Papademos:  Greeks would lose their savings; the state would be unable to pay salaries and pensions; and shortages would occur in important items such as medicines, fuel and machinery. Under the circumstances, it’s easy to understand why Greece’s political leaders would want to keep kicking the can down the road. After all, anything seems preferable to letting the catastrophe that looms simply happen. In the meantime, a potential escalation of violence was foreshadowed by a statement made by Vasso Papandreou, a socialist and former member of the European Commission:  “If we say we do not pay the bond that matures on March 20, all [Europeans] will rush to find a solution.” One of these days, we would bet, Greece seems certain to call the lenders’ bluff.  On that day, we wouldn’t want to be caught short the U.S. dollar.

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  • bc February 14, 2012, 10:40 pm

    Look at VXX or TVIX. The smart money is hedging…aka getting nearer the doors in a smoky theater.

    • Cam Fitzgerald February 15, 2012, 3:33 am

      I would be willing to bet volatility as about to take an upswing too. It’s been too damn quiet…too peaceful. We know it won’t last under the current circumstances. Just a breather is all.

  • Cam Fitzgerald February 14, 2012, 8:48 pm

    Has anybody been watching the dollar today? Very solid move up is in play and it looks to me like the break towards a retest that I have been talking about the past while.

    My premise here is that the dollar heads back to 82 and does not break through. Instead we get a double top and a set-up for huge buying opportunity on the short side.

    The real ride down would be an extended one and could play out for months before finally hitting bottom and bouncing.

  • ROGER, Canadian Libertarian February 14, 2012, 8:04 pm

    YES there will be violence in the U.S. BECAUSE the Establishment ( the 1 %/elites) needs the EXCUSE for the FINAL move to ultimate DICTATORSHIP. They need the Poverty and Ignorance created by Dictatorship to maintain their wealth and power and they will DO WHATEVER is necessary , including causing the American people to resort to violence OR, without violence, for the American People to accept their subservience to the Elites/ 1%

  • Robert February 14, 2012, 6:13 pm

    I sure do wish the several states would just get it together and call for a Constitution Convention already…

  • mario cavolo February 14, 2012, 4:24 pm

    …damn fine thread everyone…happy to be part of it…and thanks to Rick.

  • Mark Uzick February 14, 2012, 12:38 pm

    mava: “This looks and feels as if it was planned before 2000. They realized they will need police state powers, because eventually, everything will collapse and the fecal matter will hit all the fans at once. Then they will be killing people (us), left and right as if we were rabbits.
    For this, they have made 9-11. This part of their plan goes pretty well.”

    I’m sure you understand what ‘blow-back’ is; no secret, sinister power had to ‘make 9-11’, anymore than FDR had to ‘make pearl harbor’. At most, I would agree that it was possible that the GWB and FDR administrations purposely sat on evidence that theses attacks were coming.

  • mava February 14, 2012, 5:51 am

    to Rick J:

    You have asked the question which leads me to believe you see something through the charade. You have that feeling that in midst of misdirection, it’s not the magic, no, something else is going on, what is it?

    Ask, and ye shall receive the answer, they say.

    The reason why FED offers ZIRP, is obviously beyond the understanding of the crowds. They think, that the ZIRP is there to revive either the economy, or the banks, or both.

    Wrong.

    ZIRP is nothing but a simple money-laundering operation. You see, the FED can print trillions and trillions of dollars, any time it chooses so. However, it is a bad taste for USA to openly behave as some banana republic.

    The thing is, we are banana republic now, but we like to pretend that we aren’t. Every colossal empire likes to keep the status quo, during its colossal collapse.

    So, what Bernanke is doing, he is laundering the freshly printed fiat through the banks, before loaning it to the government. He is running the dirty room of a crime, and he will only be disposed of when he is done.

    The government, can afford no more than a 2 percent rate. If Bennie loans it to the feds at 2%, then fingers are going to be pointed – monetization! But, when banks loan it to the feds, – it’s “private” money.

    So, at what rate can Bennie loan “give” money to the banks, to make it possible that the banks do their part in laundering and turn the paper to the feds at no more than 2%? Yep, zero just about would do.

    Why does the FED announce their intentions all the way to the end of 2014? Because, nothing short of such an announcement would make the crowds sure that the FED is FORCED to do so, while the FED actually WANTS to keep the ZIRP at least till the end of 2014. Would you like the FED to say instead : “We have no choice. Either we monetize with a 2% loss (that Laundromat Owners will take), or we collapse!” ?

    There is absolutely no intent to help an economy.

    I am of an Austrian school of thought, and I understand that we are talking Keynesian definition of help here, however, what I am saying is that there is zero intention to “HELP” the economy even in Keynesian understanding.
    If the FED really wanted to recapitalize banks, they would simply assume their debts and fill their accounts up to the brim with money. If the FED really wanted to help the housing market, they would simply bail out it, every underwater home owner, and send free money to anyone enough to buy ALL of the hanging inventory.

    Do you see this happening? I don’t.

    Why? Because, the banks are on the deal with the FED, and the deal is, that as long as they continue to launder the money, nothing drastic is going to happen to them, economy be damned.

    I would suppose, that if some bank wanted to lend some significant (to the government budget) sum of fresh paper to someone else besides the government, they will get a warning call from the fed.
    Last thing the FED would want now, is for the banks to start lending. If that happens, then either the FED has to print that much more or where is the government going to get the 2% money?

    This looks and feels as if it was planned before 2000. They realized they will need police state powers, because eventually, everything will collapse and the fecal matter will hit all the fans at once. Then they will be killing people (us), left and right as if we were rabbits.
    For this, they have made 9-11. This part of their plan goes pretty well.

    However, ready or not, none of them really wants to turn the fans on. So, the act right now is to delay as much as possible. They knew back in 2000 that the government debt will become unsustainable, and so they crashed the economy in 2007 – 2008, in order to create the laundering scheme which sustains the government right now.

    Official propaganda would have you believe that the foreign lending stopped only after the economy went into recession. Hmmm. What about the rumors (and you know the rumors are always right) in 1998 that the US secretly pays back the lenders to keep them posing as if they are actually lending? This means that the foreign lending stopped way before, and continued only on paper.

    This government has outgrown the purpose for its existence. It wants to exist even if the price for its existence will be the death of USA.

    And, LOL to Mario and Avocado. Of course, this will continue perpetually. Yup. I don’t know why am I working. We should all live well by just printing the paper.

    RA is right. These debts will be paid by all of us either being killed of denigrated to the level of slaves for many generations. “By the lender,” that is.

    • richard j February 14, 2012, 5:46 pm

      Mava; Yes, generally agree and as RA answered, we are past the point of no return and the debt payment can and will be extracted if by no other way, through the decline in living standard, always a price to pay, and no allegiance to a country as countries have become virtual to money masters whose allegiance and borders are ones and zeroes in a computer; but also to the unseen chess masters who are the king makers.
      But beware the unintended consequence of empowering a country who does not pay dues to the fiat chess master. As Robert points out, this level of thinking is simply beyond even intelligent people, who, after a 12 hour day are capable of nothing more than unwinding in front of an edition of American Idol, a sort of modern day They Shoot Horses Don`t They? movie served up daily in multiple formats of inane stupidity.
      In Canada, the central bank and guv encourage people to not take on more debt. When has this ever happened? Admission of need of all capitol by guv? Guv would prefer inflation not happen quickly as a virus or disease which is successful can only stay alive by not eating its host all at once.
      Banksters in 90s looked into their crystal ball and did not like what they saw in terms of growth potential, so they stole it forward. Think derivatives. Who decides when a 70% haircut (Greek bonds) is a default? The people who sold the credit default swaps through the ISDA which they control, that is who.
      Derivatives are the master device for controlling your profits, simply close one side of multiple transactions which are basically a net out position. Banks sell the profitable side and transfer the losing side to the fed or guv contolled insurance co. AIG at cost. Maybe hold bad positions at what ever value they want. End game.

  • Chris T. February 14, 2012, 1:38 am

    “…Americans are busy adopting Spanish as a second language.”

    Hardly!
    The sentence mentions English as having become something of the lingua franca in Germany and Japan.
    While to some extent true in Germany, one need only go to Japan outside of Tokyo and some of the other most major places, and then try to get about with English. Very, very difficult, and even reading names and signs is impossible.
    Even in Germany, while many do speak English, it is not used domestically, other than in a fake-Egnlish, pseudo-hip word dropping.

    But even that is more than in the US.
    How many not of Hispanic extraction really speak Spanish, even after a few years in school?
    Very few.
    The reason Spanish is becoming so omnipresent, is solely due to the inflow of immigration (legal and otherwise) from C&S America. Yet for all the pandering, economic and political, done to cotton to that minority population (where flights to Europe at Newark airport are in signed in English and Spanish, but not Germen, Danish, Dutch, etc, LOL), it is hardly a second language of the US.

    And in those places where Spanish is truly numerically strong and gaining, it is supplanting English, thus not becoming the 2nd language, but the first.
    It is precisely because of the pandering mentioned above, that it is only supplanting English, not becoming second language.
    And why should people adapt?
    If just about all their daily interaction works just as well in Spanish, why bother with English?
    They won’t and won’t need to.
    Then eventually, in those parts Spanish will no longer be optional for the non-native Spanish speaker, the so-called Anglo, but necessary.

    As to Rick’s comments about why and how the doller became the reserve currency:

    I would add the petro-dollar to that mix, which is ultimately the proposition, that we prop up local dictatorships who will keep selling their one commodity to us in our, not their, currency of choice.
    When did that become the pillar?
    Probably after Bretton Woods vanished, up to that time, those satrapies could, in theory, still obtain universal money.

    China:
    I think Mario is righ about their aspirations, have made that point myself. Any “belligerence” we hear from them is only reactive to our posturing, which doesn’t just appear to be encircling, but in fact, is.
    Defensive yes, but imperialistically agressive, not in character, and not apparent now (just compare their DOD budget to our DOD budget)

    • mario cavolo February 14, 2012, 3:51 am

      ….indeed, they are quietly, cleverly, economically aggressive; and proven themselves to be extraordinarily good at it for better or worse…

  • j February 13, 2012, 11:39 pm

    O.T…..Excellent call regarding your HUI support level Rick, 519 touched 2 days in a row….breaks higher or looks for 511….

    Great discussions today, enjoyed!

    j

  • Aussie Mick February 13, 2012, 10:57 pm

    Don’t worry about financial bailouts…bailout of America …it is now a police state. The programs currently being used in Iraq, Afghanistan, Libya, Syria and soon to be..Iran…will be visited on the population of those who have sucked the world dry of resources, raped and murdered at will..the good ‘ol USA. Not your fault? The American people voted for the Govt. they now have…headed by a black puppet whose strings are pulled by his British masters. Don’t worry about money…there are no shops in FEMA camps. Keep watching TV and sport for the next 4 months…while you wait for WW3…it is coming if you hit Iran….ask the Chinese and Russians….Remember the golden rule..as you sow…so you reap.

    • SD1 February 13, 2012, 11:56 pm

      You keep on reading the internet and all the fear scams, Aussie Mick. You are only slightly less mis-led than those watching football on TV. Try going for a walk. Soak up some sun and get a breath of fresh air. You obviously need it.

  • bc February 13, 2012, 9:30 pm

    I think a good analogy to what is coming next is the reconstruction era of the post civil war South. First, carpetbaggers will appear, i.e. illegitimate politicians who are really crony’s of banking interests who rig elections, promise one thing and do another, and have no roots in the communities they purport to represent. Second, “greenbacks” will be issued by a new governing authority to supersede our old defunct currency. This may be better than barter, or not, but who will argue with the end of a gun? Third, an extreme reduction in living standards is inevitable. We will be, in a sense, living under an occupying force that keeps reminding us they are here to “serve” and “protect” even as they loot what little is left. Read up about that era because past is prologue. We will find a uniquely American pathway through destitution to renewal just like we did during reconstruction.

    • Steve February 13, 2012, 9:48 pm

      BC, The Reconstruction Acts of 1867 extend to the present and are the basis of most ordinances today. Emergency Banking, Trading with the Enemy Act. We are still there !!!

  • Larry D February 13, 2012, 9:19 pm

    It took WWII and 60 million corpses to end the abyss of the 1930s and create the boom of the 1950s. Here’s to hoping the past won’t repeat.

    • gary leibowitz February 14, 2012, 1:12 am

      Don’t think a world war will have many winners this time around. Local wars unfortunately do create economic stmulus but not on the scale that would help.

      I don’t think a war is needed to see change. With new world economic dynamics developing perhaps all it would take would be mutual cooperation.

  • gary leibowitz February 13, 2012, 8:37 pm

    An example of how the economic structure will change without the dire black/white scenario is already starting to develop. Obama is proposing using the Buffett Rule to rebalance the huge windfalls the rich have enjoyed these last 10 years. I am sure this will not get passed with the Republican majority, but it paves the way for a great debate during elections. With the disparity so glaring I would find it hard for the Republicans to gain public opinion on this one.

    Just as we came off the abyss from the 30’s so too will we allow change to create a new boom phase. Time, it will take time, and most likely more pain before these types of changes take hold. Debt will eventually be paid or written off. A new era of frugality will happen just as the credit card launching in the 80’s caused the reverse.

  • Yet Another Steve February 13, 2012, 6:41 pm

    Maybe Rome took centuries to fall but the internet facilitated the fall of several middle Eastern countries in hours and days. A big military or currency event could set off a chain reaction in the contemporary world that would take a few hours or less to render our financial and cultural landscape unrecognizable, IMHO.

    YAS

    • Robert February 13, 2012, 9:56 pm

      … And, as I mentioned above, most people would probably miss it; unless it pre-empted American Idol.

  • C.C. February 13, 2012, 6:41 pm

    This is for those who live in the U.S.

    If confusion reigns as to where we’re at, or where we’re headed – fiscally, socially, economically, etc., there’s an easy self-test to assist one in determining the outcome. The only requirement is that you are of 50 years or older. Why? Because you must have lived at least that long to appreciate what has been lost in terms of personal Liberty.

    Now then, think back to the late 60’s/70’s – even 80’s. Think in terms of basic, fundamental (Constitutional) rights; Property rights. Parental rights. Regulatory burden. ‘Mandates’. Taxes. Etc.

    Have any of the aforementioned burdens been lightened or weighted down with time? Through ‘conservative’ or ‘liberal’ political cycles – or both…?

    These are the signs that one needs pay close attention, for they are the harbingers of what is to come when economic pressures force upon social constructs.

    • Robert February 13, 2012, 9:52 pm

      C.C..

      The only true rights a person has are the rights that they are personally willing to defend…

      That is the only philosophy that the US Constitution guarantees us, via the preservation of private property.

      The shame is that our government challenges these rights daily, and people consistently FAIL the test.

      Here is a clear and unambiguous example: On the fateful day that some hapless, probably socially progressive social worker from some government department of child safety came to my home with the intention of taking my child away from me due to some “observation” made by one of my neighbors; the only thing you would read about the next morning is ahow some heartless, criminal psychopath blew away the bleeding heart do-gooder who knew what was better for his kids than he did….

      Get it?

      Your rights have NOT been taken from you. Only the societal consequences of EXERCISING your rights have been ratcheted up.

      If you can look at yourself in a mirror and say “I know what I would do if my rights were trespassed upon” then you can understand that your rights are still yours.

      Consider the recent story of Josh Powell… He blew up himself and his sons rather than surrender them. The story paints two very troubling pictures:

      1) A Man who (probably) killed his wife manages to forestall justice long enough to go on and kill himself and his innocent children.

      But:

      2) The Children were talking about the disappearance of their mother during the family camping trip, talk which may have incriminated their father, which would label him a triple murderer…

      But, through it all- Josh Powell understood his personal rights. He owned his life and lived it on his terms, however ugly it may have been.

  • farang February 13, 2012, 6:38 pm

    Oh my: “The plaintiffs will be claiming in effect and with a straight face that they got in over their heads because lenders forced them to borrow more than they could repay. Who would have imagined just a decade ago that an army of reckless borrowers would seek the protection of the courts under the remorseless deadbeat’s battle flag “Kick me, beat me, make me write bad checks”? That’s what it’s come down to, evidently, and woe to any bank that asks the court for help in turning a family out onto the street.”

    Yes, who could imagine….let’s go back to the last, 1985-1990 US Real Estate bubble, shall we? Back then, I was a first time home buyer: the lender demanded I list every expense, including child care, fuel for travel to work, recreational expenses….and we barely qualified for a home that cost @ 2.5 times our yearly income.

    That’s labeled responsible, conservative, traditional banking practices. Now let’s fast forward to the post Glass-Steagal era of banking, where lenders set up boilerrooms to try to goad “reckless” (read unqualified) borrowers into taking loans without the proper checks and paperwork (liar loans for example), so they could bundle this crap into “investment vehicles”, bribe their cronies at the ratings agencies to stamp these steaming piles “AAA”, then sell them to buyers thinking they were doing business with bankers of old, and in the mean time, these scoundrels and sh!tbags were betting against the very loans they had made, *knowing* full well they would default…and Mr. Ackerman bemoans the poor bankers fate.

    Excuse me while I hurl.

    • John Jay February 13, 2012, 7:08 pm

      farang,
      Very true. I was a mover back in those days and I talked with homeowners that were in some serious trouble with the Federal government for mis-stating their income on a mortgage application. They were making all the payments just fine but just lying on the application was a big deal back then. The good old days for sure. Here is an interesting view on ZIRP from ZH.

      “The reality is that the Fed is stuck in ZIRP and will never be able to leave it. In 2011, the US made $454 BILLION in interest payments. And that’s with
      interest rates at or near 0%.
      Things are only going to get worse. According to the Congressional Budget Office, the estimated interest that will be due on the US’s debt load by 2015 will be $533 billion: an amount equal to 1/3 of all federal income taxes collected that year.
      And of course, if interest rates rise in any fashion, the interest payment load will rise as well. This is part of the reason why the Fed cannot raise interest rates in the future… ever.”

    • Rick Ackerman February 13, 2012, 8:33 pm

      You must be new around here, Farang. In any case, I would have hoped I’d made it clear by now that I would feel nary a twinge of pity if every banking tycoon in America were to be strung up by his balls, there to hang till dead.

      Sorry for the misunderstanding.

    • mario cavolo February 14, 2012, 1:15 am

      Nice rant farang…but Rick and the rest of this merry band are with you all the way on the joys of a well-deserved town square hanging….

    • mario cavolo February 14, 2012, 1:17 am

      Hence jj …arrival of the Japan scenario for the U.S.

  • Robert February 13, 2012, 6:16 pm

    Ok, no “The end of the world is nigh” sermon from me today- I think most of you have pretty much belabored that topic appropriately (although I do need to shout out to Rick J, who correctly asserted that the collapse of the Roman empire was not quick- it was a very long, tedious, and destructive process; and the decline actually disguised itself as Utopia as the bread and circuses, vomitoriums, and orgies kept a slothful society indulgent on its own avarice and shamelessness…

    The final sacking of Rome by the Huns was merely the final act of a play that took over 150 years to play out… and it all started with the clipping of the Denarius- the first modern example of curency debasement in the historical record.

    But HEY- Who watched the grammies last night? Weren’t they GREAT…? No need to tune into any of that ugliness in Greece when there are 157 other channels to choose from.

    So, back to Rick’s commentary:

    ” In the rapidly escalating legal battle to bring this about, last week’s $25 billion settlement between the banks and the U.S. did not settle much of anything, since the banks in theory can still be sued into oblivion by aggrieved homeowners. ”

    Wouldn’t that be GREAT? Watching the lawsuits drag the entire legal/court system into a gravitational singularity as the Judges themselves started resigning under duress due to 20 hour work days; followed by the lawyers all giving up their practices since they would see no practical path to compensation working on pro-bono cases that can never reach a final verdict…?

    Look, the banks are paying this settlement to avoid criminal prosecution for the robo-signing controversy, and the state AG’s are all declaring what a great settlement it is, ONLY because the money will patch the shortfalls in the state budgets…

    California held out on the settlement until it was announced that their share would be (drum roll)…. 3.8 Billion – which is exactly the California state budget shortfall for 2012. Do you think that’s just a COINCIDENCE…?

    This is extortion- the AG’s are the thugs shaking down the mom and pop shops (the banks) for a little “protection money”

    Now, don’t get me wrong. As a man of principle, I won’t declare that any of the big banks should not be held accountable for their actions; but I would much prefer the the FRAUD behind the robo-signing case be handled as a CRIMINAL matter (ie: find the decision makers that approved of this practice, and haul them away to the kind of prison made famous in the movie “Office Space” (google it)

    Nobody is going to jail for forging foreclosure documents, and no one is being awarded their illegally foreclosed home back… The fraud is exposed for all to see, and it is being papered over with a pile of Federal Reserve Notes.

    The AG’s simply decided that paying off the state governements is adequate recompense for the banks, and it leaves the banks perfectly postioned to move on to the next criminal collusion between the banks and government.

    Man, it feels good to be a gangsta….

    • Mark Uzick February 13, 2012, 10:09 pm

      Robert:”The fraud is exposed for all to see, and it is being papered over with a pile of Federal Reserve Notes.”

      What fraud? Are you saying that people who are up to date on their payments are being foreclosed on?

      Isn’t the real fraud on the part of the debtors who are taking advantage of regulations to falsely deny that they are in default? If someone lies to get something for nothing on the supposition that his creditor’s books are too messed up to prove otherwise and then it’s subsequently proven that he was lying, isn’t that proof of fraud?

      Rob-signing isn’t fraud against debtors; it’s a fraudulent shortcut of regulations; more like a regulatory infraction. After the bank officers are fined for technical infractions, shouldn’t any debtors, after having lived for free without paying their mortgage, found to have been lying about the existence of their mortgage in order to cheat their creditors, be brought up on charges of bank fraud?

    • Robert February 14, 2012, 6:04 pm

      “Are you saying that people who are up to date on their payments are being foreclosed on?”

      What I am saying is that most of the banks that underwrote these loans illegally cataloged them in the MERS system; instead of filing the liens with the County Recorders. Many of these liens were NEVER legal.

      “Rob-signing isn’t fraud against debtors; it’s a fraudulent shortcut of regulations; more like a regulatory infraction.”

      That is not an accurate statement. Robo-signing is forgery, and forgery is criminal.

      Besides, it’s more about the foreclosure itself more than the matter of forgery.

      “Isn’t the real fraud on the part of the debtors who are taking advantage of regulations to falsely deny that they are in default? If someone lies to get something for nothing on the supposition that his creditor’s books are too messed up to prove otherwise and then it’s subsequently proven that he was lying, isn’t that proof of fraud?”

      True, it is morally and ethically fraudulent – but the “liar’s loans” and NINJA loans (no income, job, or assets) were both LEGAL constructs formulated by the LENDERS who stated in CONTRACT that they did not care whether the buyer could indicate that they were able to service the loan agreement or not.

      These loan applications were NOT drawn up by predatory borrowers who were trying to get something for nothing- they were drawn up by lenders who were OFFERING something for nothing… And now everyone seems so surprised that people actually took the lenders up on these offers….?

      It’s irrelevant whether the home buyer was able to maintain the loan, or whether they were a “victim” of a predatory lender… They agreed to purchase the home, but were under NO LEGAL OBLIGATION to ever satisfy the financial requirement of an invalid lien. Therefore, the banks had NO LEGAL BASIS for these foreclosures. Then, the banks exacerbated this criminal behavior by processing as many illegal foreclosures as they possibly could ram through the system because they KNEW that they had no valid legal claim on the real property, so they got their hands on as many houses, and evicted as many tenants as they possibly could.

      If the banks had LEGALLY filed the liens with the County Recorders’ offices, then your argument would be 100% valid, and the banks would have legal claim on these foreclosures, and I would have no issues with any of this.

      The whole “the tenant never would have been able to pay anyway, so it is ok to kick them out and take the house” argument is a RUSE- it is the smoke in mirrors that obscures the fact that the law simply does not allow invalid liens to be defaulted on; nor for the real property to be foreclosed upon. If the lien agreement is null and void, then by the law (in at least 13 states), the creditor is the loser- period.

      Whether the homeowner was current or not on their payments is irrelevent. In at least 13 states, every one of these cases should have ended up before a judge, and the vast majority of them should have had the lien nullified. in these 13 states, the nullification of the lien clears the way for the tenant in common (the resident of the real property in question) to apply for clear title to the property.

      Does this clear things up?

      I was making no prejudicial statement about whether people were too stupid to enter into loan agreements that they would never be able to pay off, or even to effectively service. Indeed do I agree that many people were victims of their own stupidity for believing that they could ever satisfy the terms of these sub-prime loans; but that is an ethical issue- it has nothing to do with the nature of the LAW.

      The laws were (and still are) clearly documented to favor and protect the tenant’s rights (not the creditors) in cases of invalid lien registration, recording, and filing.

      So I ask again…. why are the Banks in possession of these houses if the foreclosures were never valid due to the liens themselves never being valid?

      I’ll tell you why- because the banks agreed to pay the States 25 Billion dollars in aggregate, and all the State Treasurers said “Hooray! our budget shortfalls are solved!”

      CORRUPTION – plain, simple, and laid bare for all to gaze upon.

    • Mark Uzick February 14, 2012, 9:51 pm

      Robert:
      I still say that an honest person doesn’t wait forced out of a house by foreclosure; if he’s unable or just doesn’t intend to make further payments or hope to catch up, he will simply vacate the premises and hand over the keys.

      The banks didn’t cheat the debtors; they tried to take back their collateral, but did so in a way that was fraudulent only in the sense that they tried to take a shortcut around a lot of wasted time and expense that, in an honest society, would have been rarely necessary in the first place.

      Now, as punishment for their bad judgment, they’ll have to waste more time and money foreclosing on underwater ‘homeowners’ who can afford to pay or walk away and buy a new home, but who instead live rent free; and they have to pay the 25 billion penalty as well.

      The primary victim of this wholesale abuse of the legal system and the wholesale fraud committed by the banks to keep from being buried under paperwork in order to get back their collateral will be anyone who wants a mortgage to purchase a home; those days are pretty much over; only GSEs backed by the taxpayer are offering them.

  • le scott February 13, 2012, 5:50 pm

    One thing omitted in this conversation is that once the fiat paper market implodes, although our paper and gold may be thrashed, that leaves the age-old option prevalent for centuries: barter.

    • Steve February 13, 2012, 6:13 pm

      Feudalism – War Lords – Force

    • Rick Ackerman February 13, 2012, 6:18 pm

      Absolutely, Le Scott. I’ve tried for years to get my wife and/or friends to start a barter exchange, since, if it is in place when the banks declare their inevitable prolonged holiday, whoever has a barter exchange up and running at that time will be in the catbird’s seat (and performing an absolutely vital service that will benefit many).

      I worked briefly for the now-defunct Bay Area Barter Exchange about 20 years ago, but it was too far ahead of its time. The key is to make certain that all barter events comply with IRS rules, since transactions are taxable. There was no Internet then, but the rise of the cloud has made it infinitely easier to set up an accounting system that would facilitate barter in a community or region.

    • mario cavolo February 14, 2012, 1:09 am

      Yep Rick had often brought up the barter side of the equation, and let me say, along with it, the benefits of cash economy to the individuals….

  • F. Beard February 13, 2012, 5:47 pm

    Professor Steve Keen offers a way out:

    A Modern Jubilee would create fiat money in the same way as with Quantitative Easing, but would direct that money to the bank accounts of the public with the requirement that the first use of this money would be to reduce debt. Debtors whose debt exceeded their injection would have their debt reduced but not eliminated, while at the other extreme, recipients with no debt would receive a cash injection into their deposit accounts.

    The broad effects of a Modern Jubilee would be:

    Debtors would have their debt level reduced;
    Non-debtors would receive a cash injection;
    The value of bank assets would remain constant, but the distribution would alter with debt-instruments declining in value and cash assets rising;
    Bank income would fall, since debt is an income-earning asset for a bank while cash reserves are not;
    The income flows to asset-backed securities would fall, since a substantial proportion of the debt backing such securities would be paid off; and
    Members of the public (both individuals and corporations) who owned asset-backed-securities would have increased cash holdings out of which they could spend in lieu of the income stream from ABS’s on which they were previously dependent.
    from http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/

    Professor Keen also has a prescription for preventing the problem from reoccuring that I don’t necessarily agree with. I would just ban any further credit creation forever since it is just a form of counterfeiting.

    • Rick Ackerman February 13, 2012, 6:11 pm

      There is no “way out.” Let me repeat Myers’ dictum here for perhaps the hundredth time:

      Ultimately, every penny of every debt must be paid, if not by the borrower, then by the lender.

    • Steve February 13, 2012, 6:12 pm

      And, what would be done with the ‘persons’ who’s top 5% tier is based upon the current fiat scam?

    • F. Beard February 13, 2012, 6:20 pm

      Ultimately, every penny of every debt must be paid, if not by the borrower, then by the lender. RA

      The debts would be paid, with new fiat. AND if further counterfeiting (so-called “credit creation”) was banned then the bailout could be metered to just replace existing credit as it is paid off with NO change in the total money supply (reserves + credit). With NO change in the total money supply then neither price inflation nor price deflation should be expected.

      &&&&&

      All of our debts must ultimately be paid, not with “fiat,” but via a collapse in our standard of living. To repeat: There is NO WAY OUT — least of all through some monetary scheme. And now, for the 101st time: Every penny of every debt must ultimately be paid by SOMEONE
      . RA

    • F. Beard February 13, 2012, 8:57 pm

      And now, for the 101st time: Every penny of every debt must ultimately be paid by SOMEONE. RA

      Then show me the error in my thinking instead of repeating that mantra? The debt would be paid and in the same value dollars too. So who is getting cheated? No one?

      Remember, the bailout would be combined with a ban on further credit creation which would be hugely deflationary by itself. So we have a one-time opportunity to combine reform (the abolition of fractional reserve lending) with just restitution for its victims.

    • Cam Fitzgerald February 14, 2012, 6:27 am

      Well I don’t know Rick, after having said it 101 times are you sure you really mean it?

      Just kidding around!

    • Chris February 14, 2012, 6:41 pm

      I think what F. Beard is overlooking is the fact that even quantitative easing (money printing) is in fact debt issuance. Money is not “money” per se, but is a note on someone’s asset. Even if the Gov “gave” $200,000 to every household, it is still a debt owed. Now, if the Gov actually had the power and the will to create and issue it’s own currency (not debt), then yes, we could reset the balance sheet. However, what value would be assigned this newly issued paper (gold???) is anyone’s guess.

  • Rick J February 13, 2012, 5:26 pm

    Rick A: So, after reading your comment, would you not expect that the debt of the US guv. will ultimately bankrupt every person in America, given the requirements of the guv and the opportunities granted the executive branch under various presidential orders on the books that can be enacted upon declaration of economic emergency?

    &&&&&&&

    Net out assets and liabilities, Rick J, and we are already w-a-a-a-y bankrupt. This is most easily noticed in the almost overnight crash in Baby Boomers’ retirement plans. As for our inheriting the Greatest Generation’s savings, look at all of the ways in which those savings are being depleted to nothing, most perniciously through the Fed’s ZIRP transfer of wealth from savers to the scumballs who handle our banking needs.
    RA

    • Steve February 13, 2012, 6:08 pm

      Rick J. Too late – the fools are already bankrupt because of fiat debt money. Even more so they are all slaves and just don’t want reality.

  • Rick J February 13, 2012, 5:19 pm

    I just read the John J and Carol posts.
    I agree that ZIRP is facilitating the liquidation of the middle class and has started a large game of corner store, by which I mean small business will go the way of the corner store of the 50s.
    Carol brings up interesting points about the money, where does it go? It is obviously not being lent to American small business and real estate, etc. I think it is obvious (91% of new debt bought by government itself) that what is happening is that the new money creation just goes to government with the consequence of accelerating the liquidation of asset values held by the populace via inflation and demand destruction.

    • John Jay February 13, 2012, 5:35 pm

      Rick J,
      Plus the internet makes price discovery so easy it is really squeezing retail margins. When I need parts for my car or I want a CD I can get the best price down to the last dollar without much effort. I might even try that $10 a month cell phone plan I see on TV. I don’t use my cell phone much, so I might just run the $10 a month one alongside my Verizon one and if the connectivity is decent, so long Verizon. Stability is a thing of the past now.

  • George February 13, 2012, 3:42 pm

    Can it be?…the Dollar is…PRIMO PIMP…of the best little money whorehouse in the world!

  • kodiak February 13, 2012, 3:27 pm

    I wish we could live behind Mario’s rose colored glasses.

    Rick, have you ever witnessed a mob in action? …and not a flash mob. What’s going to keep the streets of Peoria so clear?

    The world is awash with DEBT. Iceland is the pattern for denouement. The longer it takes, the greater the chances for THE BANKERS to lose more than their money.

    • Avocado February 13, 2012, 3:48 pm

      I was watching the Athens riots last night, thinking this will come to the US soon. When it does something drastic will have to happen to stop it.

      Jubilee. Universal debt default. Start over. Impose laws against excessive borrowing. Setup a reality based economic system.

      JMO.

      I don’t see what else will work. We will never grow our way out of this problem. We are never going to pay back all this debt. And Western civilization is not going to collapse, not unless some natural external something causes it.

      Andy

    • Mario cavolo February 13, 2012, 5:13 pm

      Right avocado….people on this forum seem to forget that all decisions by individuals or govts can and will be followed additional decisions in the circumstance and context in which they are occurring. Example, China,s housing and lending market. People seem to forget that the Slowing down of the Chinese economy and real estate market in the past year was CREATED by their infinite combination of policy choices, as was the expansion which we had here in the past five years.

      When push comes to shove, which is all we,re really talking about, you can be sure drastic decisions will be made to appease the masses and soothe the system. The Chinese govt is much better at this kind of execution than the American, though every sword has two sides…

      But wait, Rick, I suspect, would now remind us how such things can quickly slip out of control and he is dead right about that.

  • mario cavolo February 13, 2012, 2:42 pm

    Any form of doomsday logic, of credit vs cash logic, means the annihilation of western society and its currency with the rise of eastern society led by China and its currency. How does that sit for Greece and Europe?

    U.S. and Europe are overloaded with debt, a disastrous mountain of debt beyond comprehension. While China is cash rich, beyond the bank reserves, I mean domestically inside the country, also far beyond what you can imagine.

    Ergo, the USD and EURO will collapse and when they do, the RMB will be the world’s next reserve currency and China will be the world’s leader?

    Ridiculous. First of all, Germany will show up strong in that scenario. Greece will be a relative speck of dust on the country and economic map, and the Chinese with Mandarin as their tongue, the world could never sustain a language shift from English to Mandarin as the world’s main language along with the RMB being its main currency. Secondly, I highly doubt that the Chinese have any interest at all in ever being the world’s sovereign leader, as the United States became and was clearly interested in achieving over the past 100 + years. Nothing on the historical map suggests that China has similar aspirations to enjoy being a world leader, let alone “the” world’s leader. Yet they are simply trying to protect their European interests, and let’s note it seems they don’t have much in the way of ties into Greece, nor plans to go in and invest in and buy up the place at bargain prices, which is what they are doing in Africa and other Southeast Asian countries….

    Just food for thought…I’ll stop here…Cheers, Mario

    • Avocado February 13, 2012, 3:12 pm

      Please don’t stop! First breath of fresh air I’ve heard in a long time! Someone else besides myself understands that the world is not going to come to an end. I don’t know what is going to happen over here, but I would not be surprised if we did not have some sort of debt jubilee, as most of the debt we have is not going to get paid back anyway, so why not just declare a universal debt default, for everyone? Its going to happen either by design or by accident.

      Which is better?

      Andy

    • Rick Ackerman February 13, 2012, 5:00 pm

      It’s true that a country doesn’t choose to have its currency as the global reserve, Mario, the world chooses it, for better or worse. The dollar was the only possible successor to the British pound at the time it was elevated to the status of global reserve, but from about 1980 on, it became entrenched as the currency of choice for global leveraging and speculation simply because there was an inexhaustible supply of financial vehicles available for this purpose.

      As you suggest, the Chinese would have no interest in being a financial superpower, only in being an economic superpower. There’s a big difference, and because Americans — Greenspan and Bernanke unfortunately among them — never understood this, the nation’s descent into Depression despite trillions of dollars worth of ‘stimulus’ will continue to mystify the eggheads.

      Incidentally, and as Carole has noted, there really isn’t this huge supply of dollars sloshing around waiting to dive into the Next Big Thing. It is just musical chairs, and all the dollars will vanish the first time they get “caught” flat-footed in the wrong paper asset. It seems almost certain that that asset will be the egregiously mistaken “safe harbor” of U.S. Treasurys. When this happens, the world’s supply of phony money will evaporate, following C.V. Myers’ deflationist dictum: “Ultimately, every penny of every debt must be paid, if not by the borrower, then by the lender.”

    • gary leibowitz February 13, 2012, 5:09 pm

      I am also in your camp. A global austerity program that will stifle world growth for decades. That’s the more logical expectation. A world policy that will be adapted simply becuase they have no options.

      That’s not to say the stock markets will not be hurt badly. The era of inflating our way out of debt is over. The lenders will not tolerate any more risk than is already here. Why do you think three years went by and there is no sign of hyper-inflation. Surely we should have seen it already with all the quantitative easing and global efforts to ease the bank’s debt strain.

      I still expect deflation and a global recession/depression to occur.

    • Larry D February 13, 2012, 5:44 pm

      @Mario-
      “The world could never sustain a language shift from English to Mandarin…”

      It doesn’t need to.

      The Japanese and Germans recognize this, and have adopted English as a second language. The French…. well. Americans are busy adopting Spanish as a second language. And from what I’ve read, and Mario can tell me if it’s true, the Chinese are busy adopting English as a second language.

      Because English, like it or not, is the international language. That the world outside of China does not speak Mandarin or the other Chinese dialects does not matter any more to Chinese than it does to Germans or Japanese.

    • Steve February 13, 2012, 6:05 pm

      Mario, Avocado;
      Fiat. All that is being talked about is fiat money. In the end a fiat note has no collectable value by contract. A U.S. note comes into existence owing more debt than currently exists by the issue of the debt in the first place. Interest must be paid to the master for the issue of the debt, by issue of more debt. The former silver certificate was a private contract for a tangible Thing in exchange. It is possible that the value of silver will fall when a commodity like wheat becomes so scarce that someone is willing to throw silver and gold at food. (hyperinflation spike because of too few products – leading to anarchy deflation if there are no wage increases) He who has food will have all the silver and gold.
      What Avo, and Mario are saying about Fiat Rule is possible. Fiat has never ruled before, but; fiat has not been tired on a global level. Fiat puts much in the hands of the few while slowly choking out its victims. Avocoado, the World as a place of hope in or for Liberty has come to an end. Declare a debt jubilee and every saver becomes the enemy of those who are bailed out.

      I forgot to add this above – he who has the guts to do what it takes can take all the gold and silver, and the food. Let us hope that it does not come to that scenario, but; to say it is impossible is to make the Fatal Mistake.

    • Cam Fitzgerald February 14, 2012, 6:18 am

      Which is kind of why there is an appeal to owning some good quality domestic corporate debt. Just a theory, but if the cash system came apart we might conclude the stock market will tank thus evaporating most equity wealth. Bondholders with coupon will at the minimum carry on with some income without having lost more than a relative share of ownership. Savings an equity might vanish but debt will endure and this is perhaps its saving grace. Even in a corp failure, proceeds on the breakup of assets would be divided first amongst bondholders. I admit, this is not much of a plan but it is better than none and its motive is only to retain wealth relative to the assets that it backs, thus limiting losses.

    • Robert February 18, 2012, 7:08 pm

      “Even in a corp failure, proceeds on the breakup of assets would be divided first amongst bondholders. ”

      Even though this point is a basis of bankrupcy law, it is seemingly only a POSSIBILITY if we areto take GM and Chrysler circa 2008 as historical examples of how easily the law can be usurped by a government insulated by uniformed goons with guns (but the best of intentions, I assure you…;) )

  • mario cavolo February 13, 2012, 1:15 pm

    Yes the Roman empire crashed and burned quickly. Yes, a town or state or a country, like Greece, too.

    But everything implied by the current situation in terms of the banking institutions and economics plus the new global interconnectedness, is that in fact, we are talking about the unavoidable collapse of the entire global financial system and economies, not just a separate European collapse or U.S. collapse or Asian/China collapse….the economic and societal and financial system of every key country in the world IS intricately unthinkably linked together beyond able to intelligently unravel and manage. That is certainly true; so then a global sized burning of Rome…Germany… Zimbabwe…Greece… all across the world Rick’s words “(global citizens of every key country…) would lose their savings; the state (their countries) would be unable to pay salaries and pensions; and shortages would occur in important items such as medicines, fuel and machinery.

    Hmm…? So it must occur to someone besides myself that such a scenario is absurd, is extremely unlikely, that the obvious which is so incredibly obvious is therefore exactly what will not occur.

    Case in point, how can all assets go down in flames together? IMPOSSIBLE, as Rick notes, if I leave one asset, I must go into another and quite simply, rather than being a ridiculous paranoid doomsayer, the world and its economic and financial systems will keep on ticking along, no better, they will keep on evolving along.

    And so then I theorize that on a global scale, that will mean seeing the economies of some countries and currencies and assets devolving /declining while others are evolving / increasing in relative value.

    Why is that so hard to imagine? The EURO will NEVER COLLAPSE in the open markets because as soon as its gets low enough, there will be a huge in flow of cash and investment back into Europe…this is child’s play common sense, starting with the micro, that we WILL take our vacations in Europe instead of the U.S. when the EURO finally declines substantially, we WILL look at starting our business there instead of elsewhere when the EURO declines to a certain level, and that’s all just part of the ups and downs of the economic cycles in the world we live in.

    There is only one constant: increase! Perceive it how you wish. Increase of money supply, increase of digital dollars, increase of GDP, increase of prices of stuff as the RELATIVE value of currencies decreases, which is how the whole system will let the air out over many years.

    My vote is with the PEPSI CEO not doomsday…in 40 years, world GDP will top 200 trillion from today’s 40 trillion…don’t ask me how its all going to play out economically across the globe…as Ramos’ notes in his book, even the experts don’t know anymore, its unthinkable and unknowable…

    Cheers, Mario

    • John Jay February 13, 2012, 3:46 pm

      Mario,
      The problem for the bulk of humanity is not which asset class to move their wealth to in response to opportunity and crisis. Their problem is they have no assets at all and are always on the edge of doom. In the recent past the USA was a refuge from this poverty trap. We were 52% of world GDP at our peak, now we are at 18%. It doesn’t matter whose currency comes out on top, the masses have none of it. Now that the wealth of the world is spread among the entire world escape from the poverty trap is increasingly unlikely.
      Any collapse in the USA is going to wipe out the savings of people like us and move us down to the level of the masses. Even without a collapse that process is well under way with ZIRP, housing doom, off-shoring of jobs and on-shoring of foreign workers.
      Not to mention the rise in exports of energy in response to falling demand in the USA. So if we consume less gasoline big oil just exports it so prices still go up! Perhaps collapse is the wrong word to use for what is going on here in the States. Maybe leveling is the correct word.

    • Carol February 13, 2012, 4:41 pm

      I think Mario is so optimistic because he doesn’t understand money. All money is issued as debt. If all debt was paid back there would be no money. Also you keep talking about the “money” has to go somewhere. Such is true but you don’t seem to have considered that “money” may go back from whence it came – repaying a loan! With all the debt in the world eventually math is going to take hold and the great sucking sound you hear will be repayment of debts faster than new loans can or will be taken on.

      So for Mario to be so optimistic he has to believe that little debt will ever be paid back so he is banking (literally) on continued inflation world over FOREVER and ever amen with little or no debt repayment. Good luck with that scenario Mario!

    • Rick J February 13, 2012, 4:50 pm

      The collapse of the Roman Empire was the slowest moving train wreck in economic history. When do you think ours started, 1913? 1963?1971? Repeal date of Glass Steagel?
      Collapse has a lot to do with the prevailing ethical system of the populace and when it switches from one based on principle, ie- doing “x” is wrong, to that ethical system based on doing the least harm to the most people, then our fate is sealed.
      I am not a fan of Newt Gingrich, but it was interesting that faced with losing he came up with some ideas based on principles at the Cpac convention and these captured some press attention, likely as heresy.
      This mess can only be over with the removal of bankster system followed by crippling depression (unlikely) or hyperinflation with the same result. I would like to think that hyperinflation would present an opportunity (debt suitably inflated away) to restore an orderly system (think 1950s levels of wage parity and social assistance, and government spending, etc.) but doubt it ever will happen.

    • Mario cavolo February 13, 2012, 4:59 pm

      Hi Carol, you mean the debts will be paid back and so that money won’t be available to purchase stuff? Over the years of history, lots of debt isn’t paid back and won’t be in the future, correct?

      Meanwhile, let me quip…:) I don’t regard my recognition of continued inflation across the world , the decreasing purchasing power of our currencies for most of the stuff we need to buy, not to mention the raping and pillaging of the American middle class by
      the elite class in cahoots with the American govt right
      under everyone,s impotent noses, as making me an optimist. I am neither optimist nor pessimist, yet i hope and pray pessimists are wrong, especially the delusional ones who claim a doomsday cleansing is just what the doctor ordered. Um, no.

      Realist, I can accept…Cheers, Mario

    • Mario cavolo February 13, 2012, 5:00 pm

      Great point JJ…

    • Cam Fitzgerald February 14, 2012, 6:07 am

      Leveling sounds about right to me John. This is where Free Trade and Globalization were keys in shifting labour to low cost jurisdictions while opening borders to the incoming goods we used to produce here at home.

      They had to go hand in hand. It did not stop with manufactures though. I was talking to a guy today who just ordered his first pair of reading glasses from China. Did it online with paypal and got all the bells and whistles for 68 bucks. Bifocal tints, graduated, choice of frames, UV and everything. Same thing here was hundreds more. I wonder how long it will be before optical shops will be out of business altogether.

      And there goes one more part of that sector we casually refer to as “services” that accounts for about three quarters of all economic activity. Will it be long before we are getting medical checkups online and prescriptions written from Shanghai?

  • John Jay February 13, 2012, 6:11 am

    In addition to all the other Fed bailout programs they have the ever popular “Ignore It”. One trillion in shaky student loans? Millions of homeowners stop making mortgage payments? Negative balance of trade for every year since 1976? Gasoline consumption at multi year lows and prices still going up? There is no problem so big that it can’t just be ignored!

  • j February 13, 2012, 3:51 am

    Title is a little misleading Mr Rick

    So when the world in years to come turns its focus towards the US debt where will the world flock to then, the Euro, nah…yen, good grief…..gold? hmm

    I was hoping your headline was going to be a futuristic look into the day the world turns on the US$…..until then the reserve currency will be the liquidity of choice or shall we say…. no choice!

    j

    &&&&&

    Why settle for “hoping” that I’ll offer a headline that works for you when you could contribute a guest commentary yourself? E-mail me with a real address via the link at bottom if you’re interested. RA

    • Onoiro February 13, 2012, 11:06 pm

      Should there be deflation would not gold make an excellent alternative to scarce dollars? Should there be hyperinflation would not gold make an excellent alternative to worthless dollars?

      -Onoiro