We have been given a gift - a six month (up to now) to couple-of-year (maybe) time frame in which to recognize the truth, break up these behemoth organizations, force the bad debt into the open, default it, make depositors whole and in doing so place our economy on a trajectory where debt-to-gdp will shrink to a sustainable level.
If we fail to do so before the rope runs out - and it will - our economy will collapse. The Federal Government will be forced to contract spending to what it can raise via taxes in the current economic climate - about half of what it spends now. Given our budget and where we spend money, this means a near-complete repudiation of Social Security and Medicare, a 50% or more cut to the military budget, and an elimination of all other federal programs. Unemployment will rocket to north of 25%. Our "just in time" economy will break down and there will be widespread, perhaps even critical, shortages of necessities - food and fuel.
To those who think this can't happen: it can. It has before to other nations, including Argentina.
To those who think that admitting to the losses and taking our medicine can be avoided forever: it can't. Exponential growth cannot be maintained in a finite system indefinitely. That is a mathematical impossibility.
To those who think that "incremental changes" will fix this: they won't. Never mind that all the "incremental changes" we've made thus far are in fact going the wrong way - toward more indebtedness, not less.
As time goes on we see that more and more of the so-called "irrational" valuations that the market placed on these securities more than a year ago were in fact conservative. The FHA now is reporting close to 8% of all the loans it guarantees are either in default or foreclosure; that number would be dramatically higher were it not for the insane step-up in issuance over the last year. In essence the FHA is trying to paper over its own insolvency by madly issuing more and more loans, as those can be claimed "current" for a short while - until they default.
"Desktop Underwriting", that is, the FHA's computer-based loan authorization system, is reportedly accepting loans with a 64% debt-to-income ratio. This is blatantly beyond safe and sound limits as the borrower is essentially assured to have a negative free cash flow after paying income taxes. (The maximum SAFE DTI, established over more than 50 years of practice, is 36%.) This purchaser funded a near-$300,000 house with $25,000 in annual income. Yes, that loan received formal "underwriting approval."
The fraud that used to be "stated income" in housing is still going on, now with the explicit blessing of the Federal Government's FHA program.
Welcome to the new boss, same as the old boss, and they both called 1600 Pennsylvania Avenue home.
If we don't stop this insanity before the market forces it on us, and it will......
I recently began subscribing to this guy’s youtube channel. I decided very quickly that he knows what he is talking about. And I’m scared.
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Obama Says A Baby Is A Punishment
Obama: “If they make a mistake, I don’t want them punished with a baby.”
Bump!
Denninger again hits the bullseye.
gulp..
bttt
It would seem to me that we an insolvency road map. Ignore the problem like Japan. /s
bttt
by: J. S. Kim September 09, 2009
The Double Dip Recession, or the “W” shaped recovery that a minority of economists, such as Joseph Stiglitz, is now stating as a strong possible outcome of this current rally, should not be discussed in the realm of economics but rather in the more apropos realm of financial fraud. The fact that the upleg of the “W” shaped recovery that is occurring now will inevitably crumble in spectacular fashion will not be a result of any free market principle, but rather the direct consequence of a fraudulent scheme executed by an elite global financial oligarchy, otherwise known as Central Banks. If the mission of this current manufactured leg-up in Western stock markets was to fool the world into believing that global economies are recovering, then clearly, up until this point, the mission has been a resounding success. For those unfamiliar with the term “blowback”, it's a CIA term that was first used in March 1954 to describe the unintended consequences of US government international activities kept secret from the American people.
[snip]