Foreclosure Crisis

Sorry if this has been posted already. Click the link above to view the Jon Stewart video.....it speaks for itself or as 'foreclosure for dummies'

shaking head.... did get a laugh though.

From the Blog “The Automatic Earth’, Oct 8, 2010.........Ilargi: It’s not the first time, guys, and it won’t be the last by the looks of it. But I do apparently have to repeat it from time to time: we’re still having the wrong conversations. And I’m increasingly losing hope that we’ll switch to the right ones before it no longer matters what we talk about.

I was thinking about this the past few days looking at the gold price situation being discussed everywhere, including in the Automatic Earth comment sections. People feel smart for buying gold at the right time, and gold is at a record high (well, in US dollars; not in euro’s, it’s not), we’ve all seen it.

Still, the reason why The Automatic Earth doesn’t focus on gold or its price is very simple: it’s not the right conversation to have at this point in time. When we’re done, as a society, as a national and global economy, with this round of real life Jeopardy behind us, 90-something percent of those who today see themselves as investors will no longer be that, and will have had to sell their gold and silver and most of their other possessions just to keep their families clothed, warm and fed. Unfortunately, that realization hasn’t seeped through at all. First off, we’re not smart enough to do the math, and second, we wish to wish it all away.

When our financial systems began to shake in 2007 and large chunks started to fall off in Jericho fashion in 2008, we were not witnessing yet another cyclical economic move, not another run of the mill thirteen in a dozen recession. We were watching the end of the financial system as we had come to know it.

And we still are. We’re watching Wile E. Coyote on a broken reel.

The foundation of it all is US (un)employment and the housing market. Well, home prices have not stabilized, in the same sense that Wile E. Coyote does not stabilize in his infamous mid air moments, but is stuck in a temporary state of suspension. He only stabilizes once he hits the ground below. Physics 101, and economics 101, though you wouldn’t know the latter from those who ply the trade. Wonder who’ll get the Economics Fauxbel one of these days. It’ll be hard to beat the thickness of handing the thing to Krugman last year.

Like Wile. E., US home prices today are suspended in mid air, and barely at that (they’re actually down 30%). The chances that they’ll go up from here are exceedingly small. And that is very bad news for the financial system, for the government and for all Americans, not just because everyone homeowner stands to lose another $100,000 or so in equity, but also because of the tens if not hundreds of trillions in derivatives written on the values of these homes and the mortgages they were “financed” with.

Nobody expects Wile E. to rise up once he’s run off the cliff, or even linger at the same altitude for too long; yet, bizarrely and unfortunately, many do expect the US housing market, and indeed the American economy, to do just that.

It’s time to stop fooling yourselves. For the US economy, housing market and labor market, like for Wile E., there’s only one way to go from here, and that is down. It’s not going to come back for a very long time, if ever. And that, if nothing else, means our decisions, as a society and as individuals, will have to be radically different from what they would be if there were a chance of a recovery.

It has been entertaining to read about the foreclosure scandals lately; turns out, they were based all along on paperwork as fabricated as the mortgages that gave birth to them, and that keep on giving.

But when I see people expressing hope that this will finally stick it to the banks, and teach ‘em a lesson, I despair. Look, all Washington has done over the past 2-3 years (or even 20-30 years) has been to protect the banks on Wall Street. Why would you think that will stop now? US banks as a whole are broke, broker, broken, and they wouldn’t survive any major change that would imperil their revenues. In the end, they won’t survive, period, but for now they’re still just zombies stuck in a Wile E. moment, seemingly alive.

Yet, even as I see people applaud Obama for not signing a legal document that would make it easier for banks to throw Americans out of their homes, the overall policy direction remains the same: save the banks at all costs, wherein “all costs” means costs to taxpayers. This has been the policy all along, and it’s been the wrong one all along too. And that is, once again, because we are still having the wrong conversations.

Everybody and their pet armadillos keep saying the same thing, even if it is from different viewpoints: it’s either something or other will “hurt the recovery”, or the opposite will. But there is no recovery, and never has been other than in funny fuzzy government stats, and despite the silly GDP data all politicians love, there won’t be, not for a very long time, if ever. We need to stop seeing the world through these rosy glasses that are starting to look seriously ridiculous on our faces.

Then again, from where I’m sitting, it’s already way too late to repair the damage done by the myopic policies we’ve witnessed ever since the walls started crumbling.

Saving the banking system was always the wrong priority. At least from the point of view of the average American. Or Brit, or German. The crucial idea in all this that makes it all go away is growth.

We need to get back to growth as soon as we possibly can, or we’re all screwed. So screwed indeed that the very thought of a possible non-growth period has been banned from all national political and media centers. Like, to reiterate it once more, Tim Geithner telling the US Senate in 2009 that there was no need for a Plan B if his great plan, which has since failed spectacularly, might fail.

And there’s something to be said for this way of looking at things, at least if you’re Geithner or Obama or Jamie Dimon or any of their equivalents abroad. If these people would give up the fight for (economic) growth, and say there won’t be any for years to come, they’d lose their powerful positions in an instant, only to be replaced by the next in line boyo willing to declare straight-faced that recovery is just around the corner.

There are two things that have kept up the appearance of something resembling normality, or recovery, name it what you will, so far. One is the trillions of dollars, euros, what have you, in clueless citizens’ -future- tax revenues that have been thrown down the pit of financial losses -wagers- in the banking system. The second is the suspension in mid-air (Hello, Wile E.!) of accounting standards across the board.

An asset bought for $1000 that couldn’t today be sold for $10, can remain on a balance sheet for the full paper value. In fact, billions of such assets do across the globe. Why? The prospect of future growth, of course. One day, they’ll be worth $1000 again, nay, $5000, and so why would we mark them to market?

That’s where we get back to housing: banks, pension funds, market funds, let’s not forget the Fed, are loaded with such “assets”. All, or nearly all, on balance sheets for 100 cents on the buck, and all verging on worthlessness.

Washington will try very hard, and likely succeed, to find a way to not let the banks pay for their own crimes, which is what the automated foreclosure proceedings add up to.

According to the official mantra, letting the main banks go belly-up would kill the entire system. Letting millions of Americans go belly-up, not so much. It’s all a matter of priorities, don’t you know, and you, yeah you, are not the priority.

But these same banks still have vaults overflowing with worthless and useless assets, and nothing has been done about that other than the Fed buying $1-2 trillion worth of them with taxpayer funds, and Mother-of-God only knows how much “money” being spilled by now between TARP and other stimuli on the one side, and on the other banks borrowing at 0% from the Fed to buy Treasuries which can be parked at 3-4% at the same Fed the same day.

They are labeled “systemically important”, or Too Big to Fail, these banks. But the only system they’re important for is the one that says recovery is always just around the corner, the one that controls Washington, and all politicians that reside there.

And that is simply the wrong conversation. We -pretty- desperately need to figure out what we’ll do if we in fact need that Plan B. But there’s nothing out there. Even George Soros talks about avoiding things that “will hurt the recovery”.

In the end, the math is simple. If home prices keep falling, unemployment numbers keep rising. That correlation has been proven time and again. And if this happens (make that when), mortgage-backed securities will continue to fall in whatever “value” they still might have. That in turn means banks will need to be restructured, re-financed, re-Frankensteined.

It also means Fannie Mae and Freddie Mac become a multi-trillion dollar liability on the American people, many of whom will, the horror, the horror, by then just happen to have lost that $100,000 plus in equity on their American Dream property.

This will lead to an explosion in unemployment, since ever fewer people will have any discretionary income needed to keep stores and factories open, which will then hammer home prices even more. Consequently, tax revenues at all levels will scrape the gutters, forcing governments at all levels to lay off more workers, and so on: you can by now finish the story pourself and color the pictures. It’s called debt deflation, people, and once you’re in debt way over your head as a society or as an individual there’s nothing you can do but to lay low and let it run its course.

The Bureau of Labor Statistics September U3 unemployment just came in at 9.6%, unchanged from August. Curious, since Gallup put it at 10.1%. The BLS U6 number, the wider, more realistic gauge, jumped from 16.7% to 17.1%. John Williams’ SGS alternate number is closing in at 23%. Only Spain resembles that in the western world.

If you can accept that 90-odd% of US banks are zombie banks (toxic assets!), that nothing has changed despite the money that was transferred from you to them, that their losses on toxic paper are far worse than anything you could ever afford, then you will have tp accept that you are zombies too, zombies, not investors, and that it’s immaterial whether you make a nickel or two on gold purchases, that those matter only in Wile E. Coyote’s suspended cartoon reality, not in yours.

One last thing to take with you:

If time is money, we’re living on borrowed time.

Mortgage Bankers Association Strategic Default

The Mortgage Bankers Association strategically defaults on its loan after shaming homeowners who do the same.

http://www.thedailyshow.com/watch/thu-october-7-2010/mortgage-bankers-association-strategic-default

We now have a "foreclosure based economy"!!

Priceless!!!

I know the bonds could fall to zero on a mark-to-market basis, but when you compare the housing market to Wile E. Coyote, what does it mean for the real estate markets to hit the ground? Zero?

What is your suggestion for fixing it???

I believe RE prices are close to zero in certain markets, ala, parts of Detroit. Need to bring back mark to market. The system needs to be flushed out. The government has prevented the full effects of the last 2 recessions to do what recessions are supposed to do...clear out the trash. Banks will fail, but they are ‘zombies’ now with the trillions of toxic debt. The longer we wait the worse it’s going to be. The longer we let this crap continue the closer we come to losing a way of life. We need to bring to justice ALL who allowed and/or took part in this housing/mortgage market fraud. No matter what we do now there will be nation-wide pain. It now depends on us and are so-called elected leaders on how long and how deep this pain will be.....I know, a somewhat simple answer to a complex issue, but the fraud has to stop to bring confidence back to the system as a first step. IMHO

Addendum: In general housing prices need to come down to a point where the average house price is around 2-3 times the average workers yearly salary.

Read later ... ;-)

I loved that too.
Every now and then he comes up with a real zinger.

Don’t you make me post a pic of Jane Fonda.....

I read all of these psudo-economic boiler plates with a great deal of trepidation. I know what the problem is, I know that the recession will not end until employment improves. How can employment improve when we have shipped all of the manufacturing jobs overseas. Where are the big employers coming from.I know what the problem is what I want to know is how to cure it/

Thanks for the answer.....I’ve been thinking of ways to deal with the problem without moral hazard , but without the cruelty to innocent people of what you propose.....

because I think the government caused the problem and NOT the private sector.....

I was thinking that you could let people collect Social Security now by raising their own retirement ages and using the upfront money as down payment to gain equity in or pay off their home....

Suppose husband and wife say “We’ll retire at age 70 for $100k cash now,,,,,,,”