THE FED IS PRINTING MONEYA brief, if terrifying, introduction(Full article here.) Jerry Nelson, McLean, VA October 2010Hi, All,
Time to let Jon Stewart, host of Comedy Central's Today Show, take you
on a roller coaster tour of recent foreclosure crisis news.
Stewart's premium cable TV show has restricted access, but see if one of these works:
It caught my attention last Saturday (16Oct) when Ben Bernanke, the Federal
Reserve (central bank) Chairman, floated the idea of printing a
trillion or so dollars. Bernanke wants to print some money for
the executive branch (buy Treasury Bonds, force down interest rates on
all bonds and mortgages), but mostly he wants to print money for the
banks. Didn't we do this before?
My memory's starting to go, I must look it up.
Yes, 1.45 trillion dollars was printed and given to the banks by the
end of last year -- twice the $700B in TARP money (the "Troubled Asset
Relief Program" bailout). And $1.2 trillion in loans went
to banks overseas -- the loans that angered Congress when Bernanke
refused to say who got them. (It may be the halls of Congress, but it
seems like comedy to me: Representative Alan Grayson (D, FL) grills Bernanke.)
Consumers drive the economy. Humiliating consumers by throwing
them out of their houses hurts consumers' confidence for a
generation. Yet we cannot stop. Even when the foreclosures
are illegal (Jon Stewart, Comedy Central above), something is
preventing us from stopping (not to mention criminally punishing) those
who broke the laws and kept cycling owners out of their homes.
FRAUDULENT MORTGAGES NO ONE WILL PAY
From a strictly financial point of view, a mortgage is worthless until
someone will step forward to resume paying it, and that will not happen
until the number written on the paper is reduced to the actual house
value or lower. What can be making a fraudulent face value on
home mortgages seem better to retain than doing a "cram-down" to
numbers that someone will pay?
It finally clicked. I think I see how the program of steady
foreclosures and resales, and the steady flow of trillions of dollars
into the banks, are related to one another. I think I figured out
why we are rotating out the families inside the houses, and cannot
change the mortgage to keep the original owner, except by doing it quietly later after we get rid of him.
TRILLIONS WAITING FOR A RECOVERY THAT CAN'T COME
In my humble opinion, many banks are bankrupt, but the public is being shielded from this as it was in the Savings and Loan Crisis of the '80s. Others
have also concluded that our banks are bankrupt, but, like Weapons of
Mass Destruction in the 2002/2003 run-up to war, the voices are few --
few will say the king is wearing no clothes.
The Fed's trillions in printed money are not for economic recovery, they are
to keep insolvent banks going . . . until the housing market recovers
enough to unload depressed and even toxic assets.
The mortgage values cannot be adjusted back to reality because many of
the six hundred trillion dollars in currently outstanding derivatives
are based on them. In particular, there are thirty-two trillion
dollars in credit default swaps outstanding, and these are mostly based on
underlying commercial and residential real estate mortgages. And,
in today's global world, such mortgage-derived financial instruments
have been sold to banks and organizations around the world.
There, people expect the United States to be wealthy, strong, and
stable. The TARP and the Federal Reserve did one or two trillion
for our domestic banks, and we loaned out 1.2 trillion to foreign
banks, but 600 trillion in derivatives, or even 32 trillion, is a bridge too
far. With no regulated, transparent, open market for these derivative
financial instruments -- because the financial industry fought it off
-- with no market, it cannot be established what the market value is --
and owners can't easily find the exits and cleanse their books.
So we're stuck. The pyramid of financial products built on
mortgages now locks in a mortgage's face value. None of those
homeowners will pay -- they know the face value on the mortgage is
fraudulent, they know from being unable to sell the house that no one
else will pay it either. The occupant of the home and his
mortgage are trash.
These families must be rotated out and replaced with other owners, but
not fast enough to depress the market with too many houses at
once. The local bank has no authority to do anything, and,
after you are out on the street, the local bank's "bank auction" always
fails (because it's based on the original mortgage value). The
house is then "REO" (real-estate, owned) and passes up the chain from
the bank to the "owner-of-bundled-mortgages" or higher. There,
all the deadbeat homes in a "bundle" are resold to new people at new
prices, and the bundle or other financial instrument is saved.
Prosperity would hide fraud. But a recovery based on trashing
homeowners and their mortgages will sputter and die. Occupants
can't be flipped fast enough to save the banks. So the banks keep
Printing money, are you kidding?
This is transferring wealth, not creating it. We
are waiting for a recovery which is not happening. The longer we
wait, the more trillions the Federal Reserve will print and give to the
banks in return for questionable assets. If these assets are
toxic enough, the Fed will not be able to sell them years down the line
(... will not be able to pull the dollars back out of the money
supply). Printing money could destabilize the country and people's confidence in it. High inflation (hyperinflation?) from this money
supply foolishness will damage
all of us at home and abroad.
We need a different
exit strategy than the unstated play book the banks
and the politicians are following. I guess the politicians are
more deeply financed by the banks than I thought. We
need another strategy. I have no idea what it will be or
who will provide it. Please, please let's not waste time on
"left" vs. "right" when what we all dearly want is "up".
Sorry this "short version" became so long. Robin let me waste a week researching and writing this:
J. I. Nelson, Ph.D.Click on it, or send your browser to HousingFraud.notlong.com
And there's a second essay.
When the crisis broke in Sept 2008, I tried to figure out how only a few
years of home mortgages could spin out to trillions of dollars,
endangering the globe. All mortgages outstanding are worth about 11 trillion. The back of my napkin says 30 trillion
would buy a new mortgage for every home in the country, yet the
mortgage-based derivatives were 60, 100 trillion. My run-down on the
games Wall Street played to get there is this: (if it doesn't "click", type in Bailout.notlong.com )
"The Fed was really adamantly opposed to any form of regulation whatsover."
--Arthur Levitt Jr., Chairman, Securities and Exchange Commission (SEC), 1993-2001
quoted in Washington Post, 15Oct08, pg A9
"... the burst of the biggest credit bubble in history ... "
The Washington Post, 24Jan09, pg A1
I worked for an investment firm with two billion under management, and
sent this "What Went Wrong" essay to my former boss, the co-founder. His only
criticism was that I was too easy on the destructive roles played by
Fannie Mae and Freddie Mac.
I'm ready for a good joke or any happy news. A smile and thank you to Ellen for sending a Gilbert and Sullivan President:
http://www.youtube.com/watch?v=y54FRMedT_s (Obama! A Modern U.S. President (musical spoof) )
My bottom line is that privileged people have lost their moral compass
because they are never punished. Perhaps criminal justice was no
better in our parents' time, but the Great Depression and
Hitler's near-conquest of the world served as a"punishment" that taught
values to an entire generation. For us, it may be climate -- the
only thing still lacking is imagination to comprehend the future.
Always glad to hear from you,
--jerry jerry-va at removethistext speakeasy dot net