The Real Horror Story: The U.S. Economic Meltdown
by ilene - October 18th, 2010 1:34 pm
The Real Horror Story: The U.S. Economic Meltdown
Courtesy of Michael Snyder at Economic Collapse
This October, millions of Americans are going to watch horror movies and read horror stories because they enjoy being frightened. Well, if you really want to be scared, you should just check out the real horror story unfolding right before our eyes – the U.S. economic meltdown. It seems like more bad news for the U.S. economy comes out almost every single day now. Unfortunately, things are about to get a whole lot worse. The mainstream media has been treating "Foreclosuregate" as if it is a minor nuisance, but the truth is that the lid is about to be publicly lifted on years and years of massive fraud in the U.S. mortgage industry, and this thing has the potential to cause economic chaos that is absolutely unprecedented. Over the past several days, expert after expert has been coming forward and warning that this crisis could completely and totally paralyze the mortgage industry in the United States. If that happens, it will be essentially like pulling the plug on the U.S. economic recovery.
Not that there was going to be a recovery anyway. The truth is that economic statistic after economic statistic has been pointing to incredible trouble for the U.S. economy.
For example, the U.S. government just announced that the U.S. trade deficit went up again in August. According to the U.S. Census Bureau, the U.S. trade deficit was $46.3 billion during August, which was up significantly from $42.6 billion in July.
So how much coverage did this get in the mainstream media?
Well, just about none.
We have gotten so used to horrific trade deficits that it isn’t even news anymore.
But these trade deficits are absolutely killing our economy.
How long do you think that the U.S. economy can keep shelling out 40 or 50 billion more dollars than we take in every single month?
If you look at the countries around the world that have become very wealthy, almost all of them have gotten that way by trading with the United States.
Meanwhile, many of our once great manufacturing cities are turning into open sewers.
Every single politician in the United States should be talking about the trade deficit.
But hardly any of them are.
Is it because Americans have all become so dumbed-down that we don’t understand these things anymore, or is it because we are so…
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DiggForeclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds
by ilene - October 18th, 2010 1:05 am
Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds
Courtesy of Michael Snyder at Economic Collapse
The foreclosure fraud crisis seems to escalate with each passing now. It is being reported that all 50 U.S. states have launched a joint investigation into alleged fraud in the mortgage industry. This is a huge story that is not going to go away any time soon. The truth is that it would be hard to understate the amount of fraud that has gone on in the U.S. mortgage industry, and we are watching events unfold that could potentially rip the U.S. economy to shreds. Many are now referring to this crisis as "Foreclosure-Gate", and already it is shaping up to be the worst thing that has ever happened to the U.S. mortgage industry. At this point, it seems inevitable that some financial institutions will go under as a result of this mess. In fact, by the end of this thing we might see a whole bunch of lending institutions crash and burn. This crisis is very hard to describe because it is just so darn complicated, but it is worth it to try to dig into this thing and understand what is going on because it has the potential to absolutely decimate the entire U.S. mortgage industry.
The truth is that there was fraud going on in every segment of the mortgage industry over the past decade. Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay. Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages. These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments. Those who certified that these junk securities were "AAA rated" also committed fraud. Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became "lost" or "missing".
Then, when it…
Runaway Feedback Loops, Wealth Concentration and Gaming-The-System
by ilene - October 16th, 2010 2:05 pm
Runaway Feedback Loops, Wealth Concentration and Gaming-The-System
Courtesy of Charles Hugh Smith, Of Two Minds
Positive feedback loops soon reach the runaway/self-destruction stage. Concentrations of wealth and gaming-the-system are reaching just such levels.
Positive feedback loops lead to runaway scenarios. The classic example is global warming and the Arctic ice cap. As temperatures rise, the the ice melts, exposing more land or seawater. Ice reflects solar radiation, and so as it shrinks then more solar radiation is absorbed, raising temperatures more, which melts the ice faster, which then leads to more solar radiation being absorbed, and so on.
The runaway feedback loop leads to the disappearance of the Arctic ice and a much warmer planet.
Nature has multiple feedback loops, and so the solar radiation flux may be acting to reduce temperatures as the positive feedback of melting ice raises temperatures. But the point is that positive feedback is self-reinforcing and it speeds up processes as it gathers momentum.
We can see runaway feedback loops in the economy and society, not just in Nature. One of the key runaway feedbacks in the U.S. is the concentration of wealth and political power.
As wealth has become concentrated in the top 1/10th of 1%, then the political power that can be purchased with that wealth also rises, which then enables the wealthy to increase their wealth via "Federal entrepreneurship" and other means.
The political process--once potentially a force resisting or moderating wealth--has been completely captured by an ever-expanding army of lobbyists, the fast-spinning revolving door between the Central State and corporations and unprecedented levels of corporate/Elites campaign contributions.
The judiciary, theoretically a force which could have resisted this concentration of wealth and political power, has also been co-opted by a marriage of ideology and wealth/power. Thus the courts have gutted every attempt at limiting corporate/insider influence over the processes of governance; the courts have enabled corporations to have the "right to free (paid) speech" unburdened by the obligations that go with such rights.
The wealth/power feedback has reached runaway levels. "Reforms" are gutted in backroom deals, votes to benefit the banking/mortgage/foreclosure industry are done on voice calls to evade public scrutiny, and a thousand other games and tricks are played daily to subvert the common good for the benefit of the few and their armies of technocrat toadies.
The other positive feedback loop approaching runaway levels is the Entitlement/Welfare State, both…
The Coming Collapse of the Real Estate Market
by ilene - October 16th, 2010 12:54 am
Here’s another great article on the frauds at the heart of the mortgage and banking sectors. – Ilene
The Coming Collapse of the Real Estate Market
Courtesy of Charles Hugh Smith, Of Two Minds
The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.
Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.
There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.
The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.
But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.
Could anything be sweeter for the big banks? No.
The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.
One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the "enforcer" which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.
But now the entire legal basis for that privatized-profits, socialized losses system has dissolved. The foreclosure scandal…
Dylan Ratigan On Property Rights Gone Wrong And America’s Descent Into Central Planning Hell
by ilene - October 12th, 2010 2:58 pm
Dylan Ratigan On Property Rights Gone Wrong And America’s Descent Into Central Planning Hell
Courtesy of Tyler Durden
Now that the Fed is officially targeting a path for the level of nominal gross domestic product, which is essentially the politburo’s chief central planning task, and is just one step away removed what China does constantly by starting with a GDP assumption and trickling it down through the economy, it is only fitting that America, now on the verge of being a fully-blown communist country, is also abrogating property rights, courtesy of the much discussed foreclosure scandal. Dylan Ratigan provides a concise explanation of just how our bankers have managed to bring us to this last descent into central planning hell.
From Dylan Ratigan
Property Rights Gone Wrong
Most mortgages in America are now backed by our government. And in order for a bank to get that backing from our government it must fill two criteria:
1. The borrowers must be verified by the banks and their agents as qualified.
2. Lenders must fill out paperwork accurately and make sure that when the home’s title changes hands, so does the documentation.
But in the past two decades, a whole lot of the time, that never happened.
Why?
For banks and servicers, the motive was money. Banks profited by packaging and selling those toxic home loans. Then they profited again by betting against those same securities. A bet, in essence, that a fraudulent loan wouldn’t be paid back.
But why would politicians allow this?
The simple answer is to stay in office.
Giving people huge government incentives to buy houses made them happier and thus made their politicians more likely to keep their jobs. And at the same time, the financial services sector — the banks making all the money — were donating to their political campaigns.
In 2008, the financial sector was the top donor to both the Democratic and Republican candidates.
So where are all these toxic loans now? We own them! At the Federal Reserve, Fannie Mae, and Freddie Mac.
And the banks and politicians will do whatever it takes to prevent a legitimate foreclosure proceeding…one which would easily reveal the lack of qualifications and bad documentation in the loans sold to the government.
Finally, the last…
From the Greenspan Archive: We Were Undercapitalized for 40 or 50 Years
by ilene - September 27th, 2010 1:22 pm
From the Greenspan Archive: We Were Undercapitalized for 40 or 50 Years
Courtesy of Jr. Deputy Accountant
How can an economic system be chronically undercapitalized for "40 or 50 years"? There’s only supposed to be as much money as there is demand for that money, right? Someone has to pay for something and sometimes they have to borrow money to get the things they want. That’s fine, it creates more demand for money (Someone A has to get the money to pay Someone B for the things they wanted but couldn’t afford and ends up paying both for the things and the interest on the money used to get the things) and supposedly our friends at the Fed are there watching that. Did any of these 40 to 50 years involve Greenspan?
I can’t believe this a**hole says some of this sh*t out loud sometimes.
“During the past 18 months, there were very few instances of serial default and contagion that could have not been contained by adequate risk-based capital and liquidity,” he said. In response to a question, Greenspan said “we were undercapitalized in the banking system for maybe 40 or 50 years.”
Maybe I’m completely off but I read that to mean all we have to do is continue to throw a whole sh*t ton of dirty Fed money out there and that could totally fix these rotting cesspools of residential real estate popping and fizzing around America.
The Google Maps foreclosure dots look slightly less contagious than they did last time I checked but it still looks like an outbreak out there.
Here’s a solution since we’re just making this up: rent out foreclosed homes and make "owners" responsible for collecting the payments and returning the majority to whomever owns the mortgage (you know, like normal f**king homedebtors do minus the rent). Make these nearly foreclosed but rented out homes like operating leases so struggling CRE companies can pick them up and make a percentage from rents for holding them. It’s genius. F**k it! Otherwise bulldoze half of them and call the housing problem "corrected".
Good thing Greenspan fixed that little undercapitalization problem by opening Pandora’s box on all sorts of creative blip-creating genius. Greenspan is the libertarian of the century for freeing the dollar, aren’t you glad he decoupled it from gold? Maybe that’s…
Where is the Bottom for Housing? We May Not Know for Years
by ilene - September 26th, 2010 5:49 pm
Where is the Bottom for Housing? We May Not Know for Years
Courtesy of John Lounsbury writing at Credit Writedowns
How far are we from a bottom in U.S. home prices? There are many estimates that there could be another 10% or more for the national average and median prices to decline. This author estimated that 2010 had a most probable decline around 11% from December 2009, with further declines possible in 2011. Little decline has actually been seen as prices are quite near where they were nine months ago. However, in the past couple of months predictions of further price declines have increased. Two weeks ago I pointed out that the outlook for home prices may be degrading.
20% Price Decline to the Bottom?
Barry Ritholtz provides the following chart, originally from the New York Times, but updated for The Big Picture by Steve Barry.
For larger image, click on graph.
This decline is certainly within the possible limits I have discussed earlier in the year (see here and here) but the projection curve drawn by Steve Barry shows a much more gradual drop to the bottom than I have envisioned. I estimate that he is showing another 3.5 to 4 years to get 90% of the way there and 5-6 years to fully bottom out. My thinking has been that the drop to the final bottom will be much quicker, driven by the weight of foreclosures over the next one to two years. However, current market conditions are causing me to reconsider.
Could Housing Go Below “Normal”?
What has not been considered by either Barry or me is the recurrence of another depression for housing, such as occurred from WW I to WW II. What sort of economic disaster would cause home prices to decline 55% to 60% from here? That is what would happen if the decline reproduced the 1920 bottom.
Or, asking a different question: What sort of economic disaster would result if home prices declined 55% to 60% from here? In such severe deflation, most mortgagors would default and every mortgage lender would be insolvent. There would be no future TARP or other shenanigan that could accommodate that eventuality. This will be discussed further later in the article.
Under Water Mortgages
Calculated Risk has an excellent post about underwater mortgages. CR states that 4.1 million homeowners owe 50% or more than their house…
How Serious is the GMAC Problem? Pretty Serious and Not Just GMAC
by ilene - September 21st, 2010 11:56 pm
How Serious is the GMAC Problem? Pretty Serious and Not Just GMAC
Courtesy of Yves Smith at Naked Capitalism
Various accounts have described how one officer of GMAC Mortgage’s servicing unit has admitted during testimony that, while he signs thousands of affidavits each month in order to affect steps in the foreclosure process, he does not have personal knowledge of certain critical facts in the affidavit which he asserts to be true. Reader Stupendous Man provided the text of Federal Rule 56 on affidavits (although the cases in question are in state courts, the same principles no doubt apply). Boldface ours:
A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated.
The key here is you can’t delegate creating affidavits to parties who weren’t close to relevant matter out of administrative convenience; you need to find people who were directly involved. And evidence in a number of foreclosure suits indicates that this problem not only extends well beyond GMAC, and is not a matter of matter of officers providing affidavits based on a review of copies of the paperwork in a transaction. As one attorney wrote:
It is beyond people signing things when they don’t see the “originals” These people don’t see shit. We have depositions from these folks, the only thing they are able to verify on the documents is what title they are supposed to use, from the particular servicer they are working for – Executive Secretary, Executive Vice President, Asst. Sec., etc…..
So there is evidence to support the notion GMAC was not alone in providing cooked up affidavits. The only question is how widespread this practice was at other servicers.
What are the implications of the GMAC Mortgage actions and how serious are the problems? GMAC Mortgage and similarly situated parties
…
Should You Buy a House Now?
by ilene - September 8th, 2010 10:26 pm
Should You Buy a House Now?
By David Galland, Managing Editor, The Casey Report
Recently, we have had a number of queries about real estate. And no wonder. For starters, real estate prices have come down. Plus, in an environment with next to zero interest rates, the idea of possibly picking up some income-producing property on the cheap holds a certain appeal to some. Then there’s the fact that real estate is very much a “tangible” – and so should hold up reasonably well, should the fiat currency system come undone, as we expect it will before this crisis is over.
The following, from reader and correspondent Ross, considers the issue of home buying from an interesting angle.
My wife and I have been considering buying/building a house for a while now. After long months of searching, we have had to ask ourselves about the "value" of a home. I say this because my parents in 1972 purchased a 2, 000 sq/ft home for $20,000. That was almost exactly what my father made per year at his job at the time of purchase. Is this ratio one to consider as a prudent homebuyer not trying to live beyond his means? I make about $150,000 a year and can’t imagine purchasing a house here in Pittsburgh for that price and being happy with that purchase.
My parents sold their home in 2001 for $180,000, which is obviously 9 times what they paid for it. We are looking at homes in the low 300s to purchase, and I can’t imagine the sales price in 30 years being 9 times that price, which would be $2.7 million! So do you see my line of thinking?
Could hyperinflation cause the price to "appreciate" that same way over time? Is inflation what caused my parents home to return 9 times what they paid for it? The reason I wrote to you regarding this topic is that I thought maybe there was a future missive buried in this line of thinking. Maybe not, but if you have time I would love to hear your thoughts on home purchasing at this time.
In response, I have to point out the obvious, that all real estate markets are local. Simply, unless it’s a mobile home, you can’t pick your home up and move. So, for example, you could offer me a house in…
The Housing Holocaust
by ilene - August 26th, 2010 1:42 pm
The Housing Holocaust
Courtesy of MIKE WHITNEY, writing at CounterPunch
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Don’t look now, but someone just pushed the housing market off a cliff. The National Association of Realtors announced on Tuesday that the sales of existing homes fell a staggering 27.2 per cent to a seasonally adjusted rate of 3.83 million units. This is the lowest number of sales since 1995. The reaction on Wall Street has been swift. Shares plunged in a wild sell-off that pushed stocks down more than 100 points in a matter of minutes. US Treasuries rallied on the news, sending bond yields lower as jittery investors sought safety from the ongoing avalanche of dismal economic data. The 10-year slid to 2.49 per cent while the 2 year note dipped to 0.46 per cent. Bond yields are a gauge of investor pessimism. At present, confidence in the management of the economy is at a nadir.
Analysts expected that housing sales would suffer after the Obama administration’s First-time Home-buyer credit expired in April, (deals had to close by the June 30 deadline) but they hadn’t expected a real estate holocaust ending in sales that are a paltry 25 per cent of their peak in 2005. The shocking drop in sales has added 2.5 months to the massive stockpile of unsold homes that is presently clogging the system and threatens to send prices into freefall. The pace of existing home sales is now slower than any time on record.
This latest housing smackdown will put more pressure on homeowners who are already in arrears or trying to decide whether its in their interest to make payments on a $300,000 mortgage for a house that is currently worth only $150,000. Expect foreclosures to rise sharply. 24 per cent of all mortgages already have negative equity. That’s 11.2 million loans. According to housing expert Charles Hugh Smith:
"Since there are about 47 million outstanding mortgages, and 24 million homes owned free and clear (no mortgage), then we can calculate that free-and-clear owners hold about a third of the $16.5 trillion in home equity — roughly $5.3 trillion. That leaves about $1.2 trillion in equity spread amongst the 47 million homes with mortgages…..
“Never before have American homeowners with mortgages held such a thin slice of equity, and never before have so many homeowners been at risk of negative equity. Predicting accurately how many homeowners end up underwater is…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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