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Guest Post: Don't Worry - They'll Just Change The Rules

Tyler Durden's picture




 

Submitted by Chris Martenson

Don't Worry; They'll Just Change the Rules

To anyone paying the slightest bit of attention, these remain very uncertain and trying times. On one side of the intellectual divide are the folks who are counting on deflationary forces overwhelming the normal credit-operated machinery of modern life, resulting in an implosion of economic activity. On the other side are those counting on hyperinflation as the most likely outcome of the grand printing experiment currently being conducted across the globe with its epicenter located within the United States.

In the middle of the intellectual divide are people like me, who are leaning slightly towards one view or the other. Not yet committed to any particular outcome, they are tensed and ready to spring in whichever direction necessary, like the last kids left standing in a game of dodge ball.

Some are expecting an imminent recovery (whatever that means), some a long, slow grind downwards, and others a rapid, if not chaotic, plunge into new and unwelcome territory of one sort or another.

There are no right or wrong views here. All sides are on equally firm intellectual standing. However, I want to let you know why it is that I lean towards the inflationary line a bit (okay, a lot, by some people's standards) and why I think that a wide-scale, final fiscal collapse is in the cards.

More than a year ago I wrote an article entitled The Sound of One Hand Clapping, in which I framed the recovery in terms of bent rules, as opposed to what should be happening.

[Despite the bursting of a massive credit bubble,] everything just keeps perking along.  What gives?

The answer, I believe, requires us to ask a Zen-like question along the lines of, "What is the sound of one hand clapping?"  That question is, "If nobody recognizes a defaulted debt on their balance sheet, does it exist?"

Suppose, for the sake of argument, that there is a world in which banks are allowed by their regulators to pretend their default losses simply do not exist.  And, even more outlandishly, some of these banks are allowed to sell heavily damaged loans to their central bank at nearly their full original price.

What does "deflation" mean in such a world?  Not much, as it turns out.  At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults.

This is the world in which we currently live.  Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions.  If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt.

But let me ask this:  What prevents the authorities from simply storing them out of sight forever?  Or at least long enough to allow the wave of liquidity to work its inevitable magic?  So far, much to my great surprise, they've managed to do exactly that, with hardly a squeak from the mainstream press (although the blogosphere is on the job, as usual).  I am now wondering if they cannot keep this up indefinitely.

While I certainly took some heat from the deflation camp for these comments at the time, my words herald almost exactly what has happened since then. Losses have been ignored, the Fed has dedicated all of its efforts toward repairing bank balance sheets, and nothing really bad has happened to the financial system. Yet.

With the recent revelation that the Fed engaged with companies and banks headquartered here, there, and everywhere in over 21,000 separate transactions totaling $1.5 trillion dollars, in a successful effort to prevent bad investment decisions from turning into a series of cascading defaults, I think it's safe to say that what should have happened (i.e., deflationary defaults) didn't happen.

Fed Documents Breadth of Emergency Measures

WASHINGTON — As financial markets shuddered and then nearly imploded in 2008, the Federal Reserve opened its vault to the world on a scope much wider and deeper than previously disclosed.

Under orders from Congress, the Fed on Wednesday released details of more than 21,000 transactions under the array of emergency lending programs and other arrangements it conjured up in response to the crisis.

At its peak at the end of 2008, the Fed had about $1.5 trillion in outstanding credit on its books. The central bank, in essence, pumped liquidity, the lifeblood of credit markets, into the circulatory system of an economy that was experiencing a potentially fatal heart attack.

At a recent event that I attended, which was heavily populated by political and monetary leadership, the view of most of the money types was that the "extend and pretend" strategy was a good and effective one. Others, like myself, argue that this 'mission creep' by the Fed involves taking on too many roles, doing none of them especially well, and risking much, including the Fed's reputation and autonomy (such as they are).

Changing the Rules

The theme here is simple enough: If and whenever the circumstances justify a major response, existing rules will be changed, altered, bent, or broken.

Because of this, I routinely argue that what should happen won't happen, at least not right away, and that there's really no such thing as investing anymore, only speculating -- unless you are a big bank, favored by the Fed, with advance information.

To the first point, what should be happening right now, with consumer credit well below its 2007 peak and the housing market in disarray, is a massive deflationary spiral. Losses should be piling up and swamping bank balance sheets. 

But they're not. Big banks are reporting record revenues and near-record profits, all thanks to Ben Bernanke's unshakeable decision to prop them up and bail them out. 

Wall Street banks see record revenue in recovery

Wall Street's biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever. Even if this quarter only matches the third, the banks' revenue will top that of any year except 2009.

The surge has come after the five banks took a combined $135 billion from the Treasury Department's Troubled Asset Relief Program and borrowed billions more from the Federal Reserve's emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Bros. Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed's purchases of fixed-income securities.

"This is a once-in-a-lifetime opportunity for most of these banks, and I think they've recognized it as that," said Charles Geisst, a finance professor at Manhattan College in Riverdale, N.Y., who has written about Wall Street's history. "The profits they're making now will allow them to replenish their capital and take care of the other things they need to do."

Obviously, when you or I lose money on a bad investment decision, it's our own tough luck and we have to manage the fallout from it even if it wipes us out. But big banks? They get a free pass to go along with free money, and they are not even required to make a non-binding commitment that they'll try to lose less next time. I would absolutely love the opportunity to borrow money from the government at a low rate and lend it back to the government at a higher rate, but that program is not available to me.

It is not at all clear that the Fed isn't breaking a few rules along the way that supposedly govern what they can and cannot buy. Certainly they are bending the rule that forbids the Fed from directly participating in government debt auctions by turning around and buying that same government paper from big banks only a week after it was sold at auction by the Treasury Dept.

So I would invite you to consider that our expectations of what should happen, whatever they might be, should be tempered by the high likelihood that the rules will be changed as much as and whenever needed in order to keep the game working.

So far the deflationary impact that should have arrived by now hasn't, and a big reason why is because the rules have been changed along the way.

Here are some other "rules" that have turned out to be less concrete than they appear in print:

  • In the world of market trading, a trade is a trade. No backsies. Shortly after the Flash Crash™ happened on May 6, 2010, the NYSE (New York Stock Exchange) stepped in and arbitrarily drew a line above and below which trades that day were 'broken' or cancelled (effectively treating them as if they had never happened). The move to break trades was historically unprecedented. Many small-time traders felt that where the line was drawn favored big players who could influence exactly where the NYSE decided to wipe out trades. Confidence in the markets took a big hit, both because the Flash Crash happened in the first place (and was never satisfactorily explained, which suggests the root cause could still be in place) and because of the opaque and arbitrary manner in which the NYSE broke trades.
  • The CTFC (Commodity Futures Trading Commission) has position limits that regulate how many contracts, long or short, any one market participant can hold. At least on paper, anyway. In reality, J. P. Morgan and HSBC hold many times the position limit of silver shorts, and the CFTC has known this for years without taking any action besides holding a few meetings on the subject after much public pressure. Undoubtedly if you or I (or the Hunt brothers) were to try to amass a silver position that breached the position limit, we would be immediately and soundly prevented from doing so. Again, there is one set of rules for the big banks and a very different set for everyone else.
  • High-frequency trading exists where certain participants are allowed to front-run sub-millisecond quotes, sometimes numbering in the tens of thousands per 'event' in order to divine price points and scrape pennies from every transaction using non-public data. Submitting a quote without the intention of having it filled is still against the rules, as is the use of non-public data, but the SEC (Securities Exchange Commission) has decided to prosecute a few penny-stock bucket shops instead of the probable culprits of the Flash Crash and provable destroyers of market confidence.

Again, the theme here is that when the circumstances call for it, the rules can and will be amended, ignored, or broken. Count on it. The sub-theme is that the well-connected get to play by one set of highly pliable rules, while everyone else must adhere to the much smaller footprint of hard-and-fast rules.

Conclusion - Part I

The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that. But the alternative has had costs that are only now becoming better appreciated. With constant bending of the rules, the only constant was that every bent rule favored the big banks, often uniquely so.

With this special attention given to a favored few, the social mood darkened considerably among U.S. citizens, especially those far removed from the beneficial impacts of the Fed's largesse. Where states are struggling with extremely painful budget deficits measured in the single billions (in most cases), the Fed has been busy printing up and handing out some $75 billion per month to its coziest clients.

While millions of people ran out of extended unemployment benefits and lost houses due to completely fraudulent and illegal banking practices, nothing was ultimately fixed and (seemingly) nobody went to jail or was charged with anything. Small, regional banks without access to unlimited and essentially free capital from the Fed are now forced to compete with big national banks that have been granted an unlimited backstop by the Fed. 

This is how too big to fail leads to too small to succeed.

But anything that is unsustainable will someday stop, bent rules or not. In Part II of this report, I explore the idea of How This All Ends (free executive summary; paid enrollment required to access) by looking at the fiscal situation of the federal government and individual states and deriving a calculated estimate of when a final fiscal deterioration will overwhelm even the best of intentions. 

 

 

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Thu, 01/13/2011 - 12:41 | 873225 Bearster
Bearster's picture

Umm, Chris?  People did not lose their houses due to fraud.  They moved into houses with little or no money down and a big mortgage.  And a year or two after they stopped paying the mortgage (and taxes and insurance and maintenance) a bank took the houses back.  Whether or not it was the right bank with the right to take it is one issue, and that is playing out in the courts now.

But can there be any question about:

1) if you don't pay your mortgage the house is not "yours"?

2) no one forced or tricked them into taking the mortgage

3) while foreclosees may be angry, their anger is not as righteous as the retiree who keeps his money in cash and watches daily as Bernanke devalues that cash into scrap paper

 

Thu, 01/13/2011 - 12:58 | 873269 gwar5
gwar5's picture

Yes, agree to some of that sentiment. And the note holders should either get the houses back and try to make good or go bankrupt.  But they want it all, and are getting it.

They should not get to profit from fees, leveraging the derivatives, the taxpayer bailouts, Free Fed money, racketeering in the markets (with protection from the SEC and CFTC) --- and get to fraudulently take back possession of foreclosed homes if they didn't follow the rules from the start.

Thu, 01/13/2011 - 14:00 | 873486 Bearster
Bearster's picture

Well, there are two ways to try to fix the problem:

1) let those who aren't paying for the house to keep it, out of some sense of "social justice"

2) stop bailing out the banks.  Their bailouts have nothing to do with foreclosure.  As I said, if a bank who lacks standing tries to foreclose, that's one thing.  But it does not give a defaulted home "owner" a right to squat.

 

 

P.S.  I see "junk" has degenerated into "I disagree with you, but I am too lazy to try to explain why"

Thu, 01/13/2011 - 14:13 | 873517 faustian bargain
faustian bargain's picture

I didn't junk you, but I would argue that if the banks knew there would be any reasonable level of anti-fraud enforcement, they would have been a whole lot more careful about knowing who has title, and about charging headlong into foreclosure proceedings. I'm guessing they were confident there wouldn't be such enforcement.

The delinquent mortgagees may deserve to be foreclosed upon (and if evidence comes out that banks were encouraged by gov't policy to grant loans to those who can't afford them, this is even in question), but the banks -- especially the bailed-out and backstopped ones -- also deserve to be forced to go through proper due process, and punished if they don't.

Thu, 01/13/2011 - 15:49 | 873853 MachoMan
MachoMan's picture

Part of the issue is that it is a pretty intricate issue in some of the securities realm...  My guess is that they thought what they were doing was plausibly legal, which was a risk they were willing to take.  It wasn't that they thought it was fraudulent from the start...  it was that they thought the legal framework was sufficient for them to operate...  this is the difference between how the big fish and the little fish operate.

Further, once they started down this path, the initial movers were simply too successful to keep a lid on it.  As more and more people figured out what was going on, everyone parroted the first movers, on down the line.  Eventually, so many people were engaged in the act that it literally sunk the world's economy.  The difference being, the folks late to the party didn't do their due diligence and didn't have the top attorneys in the world riding shotgun...  I'm guessing a few strayed from the formula...

Thu, 01/13/2011 - 14:33 | 873578 Wynn
Wynn's picture

perfect definition of *junk*

moot point however, apparently management enjoys giving the anonymous cowards a voice, albeit a valueless one

Thu, 01/13/2011 - 16:38 | 874114 RockyRacoon
RockyRacoon's picture

My reason for junking you was not due to disagreement.  It was because your "analysis" is one-sided and rather shallow since you only addressed one culprit.  There were many, including the homeowner as you mention.   It's too simplistic to put it the way you did.  Your laziness, which you admit, is the reason for the multi-junks I'm sure.

Thu, 01/13/2011 - 13:03 | 873285 CrashisOptimistic
CrashisOptimistic's picture

This is a good post.  But it did not go far enough.

People bought houses with nothing down and waited for it to go up in price.  THEN THEY CASH OUT REFI-ed and used the cash to buy toys.

This behavior may have been encouraged by banks and made "normal" by banks in order to collect loan origination fees, but no one forced these people to sign on the line which is dotted.  No guns were in the office that day pointed at their heads.

People lose their houses (that were never "theirs") because they didn't pay the mortgage.

 

Thu, 01/13/2011 - 13:08 | 873300 Chuck Yeager
Chuck Yeager's picture

True.

But the banks should also lose the right to claim the failed loan as an asset.  They have not.  And that is unafair in a very fundamental way that harks back to France in 1789.

 

Thu, 01/13/2011 - 13:10 | 873312 HarryWanger
HarryWanger's picture

Apparently, you missed this part:

"The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that."

So why didn't the "worst happen"? Because the Fed was aggressive and stopped the catastrophe. So Chris can bitch and moan, as he's prone to do, about the Fed and QE2, etc. but he just basically thanked the exact same entity for saving the financial system. Can't have it both ways, Chris.

Thu, 01/13/2011 - 13:22 | 873350 SheepDog-One
SheepDog-One's picture

Reality only kicked down the road a bit, the ignored collapse which cost us too many trillions to count will only be far worse now.

Thu, 01/13/2011 - 13:55 | 873457 barkster
barkster's picture

"the fed stopped the catastrophe"!!??  Are you kidding? Look a little further back and you will see the fed started the catastrophe.

Thu, 01/13/2011 - 13:27 | 873360 Crummy
Crummy's picture

Why have a simple financial breakdown or social collapse when you can combine the two, right?

While we're at it, let's move Christmas to New Years Eve.

Thu, 01/13/2011 - 13:35 | 873390 SheepDog-One
SheepDog-One's picture

Lets just have Christmas declared a 365 day event, where Black Friday mob-a-thons can be declared weekly! Be great for 'retail sales' hyping!

Wed, 01/19/2011 - 10:17 | 886852 alpha60
alpha60's picture

the soviets did that, still working pretty well. you chill with the family the the early evening, then get beyond hammered with your friends till the breaka breaka dawn.

Thu, 01/13/2011 - 13:31 | 873375 SubjectivObject
SubjectivObject's picture

Does it matter at all if the save effect is a real benefit for the long term, or only beneficial for the short term?

Does it matter that the save effect is funded by taxpayers without an explict mandate by Congress, without a full and comprehesive briefing given the voter?

Does it matter the the direct benefits of the save effect accrue most significantly to the already uber wealthy?

Does the execution of the save effect have any real, existential, moral basis?

Thu, 01/13/2011 - 13:44 | 873426 HarryWanger
HarryWanger's picture

Ask Chris. I'm just quoting an oxymoronic statement from said blogger.

Thu, 01/13/2011 - 14:04 | 873496 SheepDog-One
SheepDog-One's picture

Whatever, Tyler!

Thu, 01/13/2011 - 14:05 | 873501 faustian bargain
faustian bargain's picture

No you're not. You're quoting what he said and then calling it an oxymoron, which it's not. This says much more about you than it does about the author of the piece. I think the rest of us can read what he wrote and understand it, why can't you?

Thu, 01/13/2011 - 16:45 | 874144 RockyRacoon
RockyRacoon's picture

Mr. Wanger is intellectually lazy and disconnected from reality.  It would be a fertile study in sociology to examine his living standards and social interactions.  I'll bet he is ensconced behind a gated community and drives/rides behind tinted windows.  He certainly does not shop for groceries or visit unsavory parts of whatever town in which he lives.  It's a social ivory tower existence in which there are black/white decisions and opinions.  Shades of gray do not exist for Mr. Wanger.

That's why I can usually find it necessary to junk his raggedy ass.

Thu, 01/13/2011 - 13:54 | 873467 Overpowered By Funk
Overpowered By Funk's picture

You've just described what the final nail in the coffin of Capitalism was. There may be hope for you yet Harry.

Thu, 01/13/2011 - 13:57 | 873472 TruthInSunshine
TruthInSunshine's picture

Robo has NOTHING on Hairy Wang's troll capacity.

 

 

...NOTHING...

Thu, 01/13/2011 - 13:59 | 873482 LFMayor
LFMayor's picture

People bought houses with nothing down and waited for it to go up in price.  THEN THEY CASH OUT REFI-ed and used the cash to buy toys.

Isn't that essentially what all you horses asses do on the NYSE?  Just sayin...

Thu, 01/13/2011 - 14:13 | 873516 Slipmeanother
Slipmeanother's picture

Spot on LF, its what we do every day lol

Thu, 01/13/2011 - 17:36 | 874389 1223pm
1223pm's picture

"People bought houses with nothing down and waited for it to go up in price."

We should have started argument with

" People were sold houses with

nothing down and waited for it to go down in price."

now it looks convincing.

 

Thu, 01/13/2011 - 13:09 | 873303 greyghost
greyghost's picture

bearster what a complete ass. who the fuck ran up the economy to extreme heights...THE HOMEOWNER or THE BANKER FUCKS?????? the average joe is along for the ride....NOT MAKING THE RULES. get your head out of your ass. fraud with mortgages...mortgage trusts.....foreclosure fraud...oh fuck me, every single one of those has only about a dozen banks involved...yet millions of average joes....well i wonder who's in control of the fraud? i guess there is an ass born every minute

Thu, 01/13/2011 - 13:21 | 873341 Spalding_Smailes
Spalding_Smailes's picture

Who signed said paper ? Who refinanced every year or so pulling money out of said home and blowing said cash on another " house/bet/investment "....

Well my brother did and he is a business owner. I spent hours telling him about the credit bubble ahead and he spent hours telling me they are giving away money for free and the housing market was booming !!! My brother and friends all played the game.

Its called greed getting something for nothing. Sure the credit was lax NINJA loans and all but someone still had to sign the papers and roll the dice, many people blowtorched ....

Thu, 01/13/2011 - 13:34 | 873387 Richard Head
Richard Head's picture

You really love that term "blowtorched" huh Spalding?

Thu, 01/13/2011 - 13:42 | 873416 Spalding_Smailes
Spalding_Smailes's picture

 .... and Tyler's, "monkey hammered"

Thu, 01/13/2011 - 13:58 | 873475 barkster
barkster's picture

uh, did you say "blow"? huh-huh, hee, hee, huh. he said "blow".

Thu, 01/13/2011 - 13:41 | 873410 greyghost
greyghost's picture

are you trying to tell me that millions of peoples played this game......or is it a handfull of scamsters that did it. these policies have hurt millions of americans by fraudclosure...millions unemployed...hundreds of millions world wide NOW paying the price for a desperate scheme to keep the system afloat thru higher inflation for things that mean the most FOOD ENERGY BASE METALS for everyday people with no jobs. I CALL BULLSHIT ON THE WEAK EXCUSES OF IT'S ALL THE HOMEOWNERS FAULT....BULLSHIT BULLSHIT BULLSHIT!!!!! handfulls of people in any region of the country playing refi games or what ever....all the while the average joe gets sucked into a vortex of fraud coming and going to work everyday...until there is now job.....MILLIONS

Thu, 01/13/2011 - 14:02 | 873456 Spalding_Smailes
Spalding_Smailes's picture

Just my circle.

 

My Brother - Bought house in 2002 for $300. Purchased 3 more rental properties & who knows how many refinanced. All of this is going down ( w/ divorce also ...)

My best friend owns a manufacturing company ( 40 million in sales per year ) He purchased 2 lots with his brother-in-law and built 1 house and sold at the top ( 4,000sf - $700 K) he is still sitting on an empty lot & has another empty lot 4 miles away.

His brother-in-law the plummer became a builder now sitting on 3 empty lots hes getting monkey hammered. ( 250k each )

Another pair of friends tried building condos borrowed 2 million the project fell apart within 2 years, everything gone !!!!

How many people refinanced since 2001 & pulled money out of the piggy bank ???? Fucking millions ( stupid, stupid, stupid) (Without the refinancing over and over and over -  many would be o.k. today !!!!!!!!! Lets take money out of our piggy bank LOL' )

 

Thu, 01/13/2011 - 14:19 | 873537 MiddleMeThis
MiddleMeThis's picture

And how many people bought a house they COULD afford and DID live responsibly, but now have to worry about making the mortgage payment because of a job loss;  A job loss that is directly related to the bust the MotherF-ing banks and Wall Street created?  I'll bet there are just as many responsible owners losing their shirts.  But it's so much more fun for MSM to hype up the stories of the overextenders while the responsible suffer in silence.

Thu, 01/13/2011 - 14:43 | 873596 Spalding_Smailes
Spalding_Smailes's picture

But you still signed the paper. Did you buy in 94' or 2004' ? Did you refi ? 

 

Leverage kills. Many people in Europe purchase a home and live in that house for many years passing this house throughout the family. Not a huge mortgage market in Slovenia ... You buy what you can with what money you have.

I have rented since 2004. Every time you leverage yourself you must think about the risk, nothing is free or easy. No guarantees on anything.

Sure you can be pissed the bankers are rats & many stupid people made moves that hurt you but when your house was going up every year 10-15% at the time I bet you were very happy.

Thu, 01/13/2011 - 15:30 | 873771 MiddleMeThis
MiddleMeThis's picture

I absolutely signed and have no regrets doing so.  I paid a fair price and have never refi'd.  I do not live in an area that was as subject to the extreme rise in property values.  Personally for me, the only thing a modest rise in property values gave me was higher property taxes.

My argument is simply that for every person who overextended and is now trying to shirk their responsibility, there are just as many responsible home owners silently making sacrifices to adhere to their commitment. And while the responsible (like me) paid their dues (and continue to pay their dues), Wallstreet filled their pockets and continues to do so at my expense.  I'm out of a job due to our declining economy (created by Wall Street) - and while I sacrifice and worry about next months bills, they fatten their pockets with record profits.

Thu, 01/13/2011 - 15:36 | 873785 Spalding_Smailes
Spalding_Smailes's picture

100 % correct. I'm with you on all of this.

Thu, 01/13/2011 - 14:10 | 873510 waterhorse
waterhorse's picture

"It's outrageous the way subprime borrowers swarmed and solicited unsuspecting lenders and camped out in the offices of investment banks to push them to find ways to finance their insatiable need for capital to purchase homes. It's a scandal the way they got in bed with appraisers to get the home values stated at three to five times market value. It's criminal the way they falsified income to push through the mortgage loans. Oh wait... they didn't. [Hat tip to Nomi Prins, author of It Takes a Pillage.]"  http://www.huffingtonpost.com/janet-tavakoli/third-world-america-blame_b_808592.html

Thu, 01/13/2011 - 15:01 | 873663 Strider52
Strider52's picture

Some friends of mine did exactly the same thing - they REFI'd every 12 months, and cashed out any equity that had materialized. They bought expensive cars, LOTS of toys, nothing of real value, all made in China. They are lucky that they got a loan mod AFTER the bank foreclosed on both of their properties. They are lucky they still have a place to live, and are living hand-to-mouth, paycheck-to-paycheck.

 Me? I sold the house and bought gold. Then silver. Now I rent, and I'm happy.

Fri, 01/14/2011 - 03:53 | 875491 scaleindependent
scaleindependent's picture

You gotta read The Best Way To Rob a Bank is To Own One, by William Black.

An interview: http://www.portervillepost.com/pdf/The_Best_Way_To_Rob_A_Bank.pdf

Thu, 01/13/2011 - 13:32 | 873377 fearsomepirate
fearsomepirate's picture

Financial transactions and extramarital affairs have something in common:  They require two people.  Never forget that.

Thu, 01/13/2011 - 14:01 | 873488 malikai
malikai's picture

...or in some cases people and farm animals.

Thu, 01/13/2011 - 14:16 | 873529 faustian bargain
faustian bargain's picture

Is it really an affair when it's with a different species?

Thu, 01/13/2011 - 16:01 | 873897 MachoMan
MachoMan's picture

Just depends on if the animal has been branded as one that doesn't kick and whether the animal is the top or bottom.

Now, in the case of Mr. Hands' horse, I'm inclined to think there was certainly the possibility of an affair, but no animal cruelty...  quite the contrary...   my guess is in its little peon brain, it still fondly reminisces about the time it was balls deep in that strange man's bottom.

Thu, 01/13/2011 - 13:09 | 873307 pan-the-ist
pan-the-ist's picture

You don't believe there was any incentive for fraud in the loan origination business?  Who cares about foreclosures.

Thu, 01/13/2011 - 13:11 | 873315 LauraB
LauraB's picture

Exactly!  The issue isn't whether or not the borrowers owe the money.  They clearly do.  The issue is to whom the money is owed.  No one should or will get a free house.  The banks need to work out between themselves who is entitled to foreclose.  What needs to be done are pushbacks.  The improper transactions (e.g. MBS sales) need to be unwound until you get to a proper transaction -- even if that means going all the way back to the original transaction between the borrower and the bank. 

E.g. -- Buyer/borrower buys a house and gets a loan from Bank A.  Bank A sells the loan to Bank B, but the paperwork is not filed correctly.  Bank B sells the loan to Bank C, and the paperwork is again not filed properly.

The transaction between Bank B and Bank C is unwound because Bank C didn't get that for which it paid.  Next, the transaction between Bank B and Bank A is unwound because Bank B didn't get that for which it paid.  Once these transactions are completed, Bank A can clearly foreclose on the house.  The buyer was not the wronged party.  Bank C was wronged by Bank B and Bank B was wronged by Bank A.  The borrower was never relieved of his obligation to pay by the sales of the loan.

Thu, 01/13/2011 - 16:08 | 873953 MachoMan
MachoMan's picture

This is what is currently in the process of happening and what will ultimately happen...  although, I disagree somewhat with the way you have stated your proposition, given the banks have already determined who the proper party to foreclose is, generally...  (the last to pay and/or its appointee/servicer, aka the bank foreclosing...).  What the banks need to do is go to the jurisdiction where the collateral is located and obtain declaratory relief amongst themselves as to what their respective rights are to the collateral...  then, just turn around and foreclose.  No big whoop and the homeowner will be barred from contesting whether the parties to the suit are proper. 

Fri, 01/14/2011 - 03:55 | 875493 scaleindependent
scaleindependent's picture

You gotta read The Best Way To Rob a Bank is To Own One, by William Black.

An interview: http://www.portervillepost.com/pdf/The_Best_Way_To_Rob_A_Bank.pdf

Thu, 01/13/2011 - 13:17 | 873333 Clampit
Clampit's picture

"2) no one forced or tricked them into taking the mortgage"

I disagree. Housing prices were rising at a rate that far exceeded income. Citing the economic rational that this isn't sustainable and you should have known to wait it out ignores the fact that most people (then) aspired to someday own a home and have seen the effect of fiat games over their lifetime. It was a ponzi scheme, which last I checked, unless you're a central banker, is a fraudulent trick.


Thu, 01/13/2011 - 13:33 | 873381 bonddude
bonddude's picture

Forget TBTF for one moment. what about all the purposeful commercial loan fraud

at small and mid size banks. These mini-Madoffs are all over the country but you

don't hear shit about it. Right now it's all homes. I think it will change soon.

funny short about one.- http://www.youtube.com/watch?v=damy_0HvyUI

 

Thu, 01/13/2011 - 14:58 | 873656 bonddude
bonddude's picture

And then regulators tripped over the tip of the iceberg

http://www.youtube.com/watch?v=AMUKvI2Ywjs&feature=mfu_in_order&list=UL

Thu, 01/13/2011 - 13:36 | 873392 fearsomepirate
fearsomepirate's picture

You are required to use your brain when making any kind of investment.  It didn't take a supergenius to realize house prices were not going to rise at a rate faster than inflation, incomes, economic growth, or anything else forever and always, world without end, amen.  Nor did it take a financial wizard to calculate that spending every last penny of disposable income on variable-rate mortgage payments was not a wise idea.  It took five minutes of thought.

Thu, 01/13/2011 - 13:45 | 873432 Bull Meat
Bull Meat's picture

Nor did it take a financial wizard to calculate that spending every last penny of disposable income on variable-rate mortgage payments was not a wise idea.

Doing so worked out like a charm for awhile for some people.  Like any ponzi scheme, the trick is to get out before it implodes.  But back to your first statement:

You are required to use your brain when making any kind of investment.

That argument could be used in defense of any fraud.  Bank executives arguably knew the extent of their bad underwriting, sold the bad loans (by lying in their prospectuses) and then tried to walk away from the deal.  The bank officers, if those facts are true, defrauded both the borrowers (who were enticed into unsuitable loans) and the investors (who relied upon false representations).  Yes, both of those parties could (and arguably should) have done their own due diligence and could have avoided the consequences.  But that doesn't absolve the banks of fraud.

Thu, 01/13/2011 - 14:25 | 873555 faustian bargain
faustian bargain's picture

Not to even mention the underlying fraud that is fractional reserve masquerading as deposit-and-loan banking. Nor the fraudulent unsoundness of the Federal Reserve Note 'currency' system.

If there had been a sign out front of every bank that explained those two things in clear english, I believe there would have been much less wild risktaking by mortgage borrowers. In fact there would probably have been a much smaller mortgage market to begin with. But why would banks do this? They're on the gravy train, best not to rock the boat (to mix transportation metaphors).

I'm not saying there wouldn't be stupidity, but many of the well-meaning people who thought they did their due diligence yet still got burned, wouldn't have.

Thu, 01/13/2011 - 13:59 | 873435 Clampit
Clampit's picture

So Madoff is innocent? His investors certainly should have uncovered the fraud with any due diligence.

And spending every last penny on your largest asset, because tomorrow it will require even more ... I'm sure many people who bought in 2005 had seen first hand >50% of their currencies purchasing power destroyed. Housing prices had, after all, only doubled.

Blaming the pawns just isn't right. Especially when they're forced at gunpoint to play the grand fiat game.

Thu, 01/13/2011 - 13:39 | 873406 umop episdn
umop episdn's picture

Because housing prices were consistently rising, and the banks decided to loan money to people that didn't deserve the loan. This included people who were unable to pay back $5 much less than $500,000. When housing prices consistently fell, many people defaulted, and the banks tried to 'socialize' the losses on their repossessed and underwater houses. The socialization of losses happened when the Ponzi bubble burst.

I wish the gubbermint would leave us taxpayers out of this bankster-created mess.

Thu, 01/13/2011 - 13:29 | 873369 Dr. Porkchop
Dr. Porkchop's picture

When the country's so called 'elite' show that the only business model that works at the moment is fraud, then I don't see how we can expect the citizens of the nation to remain steadfast in their righteousness. From Las Vegas to Wall St., the entire economy of the last decade or more seems to be based on getting something for nothing. When every media outlet, during the housing boom, was busy cheerleading the ponzi economics of the housing bubble, so-called educational channels were airing house flipping shows, and the political class ignored all naysayers, how is the average citizen going to react? They see wages declining, jobs disappearing and everyone, including the president saying 'spend, spend, spend!'.

People should be able to take out mortgages, be gainfully employed and pay those loans back. I don't believe that the ones who took out these impossible mortgages all had bad intent. They wanted their piece of the American Dream, and when the cynical banksters found a way to sell it to them, they believed it. Who, besides a small minority, were there to properly educate the citizen? The political class? The financial class? The regulators? The media? The schools? No. They were all busy waving their pom poms for the new knowledge economy. The post industrial paradise. The get somethig for nothing economy, which is still here today.

Thu, 01/13/2011 - 14:32 | 873571 ClassicalLib17
ClassicalLib17's picture

I was always reminded that if it sounds too good to be true then it is. I think this simple rule was ignored from the top down to the bottom.

Thu, 01/13/2011 - 15:30 | 873770 My Days Are Get...
My Days Are Getting Fewer's picture

Dr. P,

 

Amen and Amen. Simply stated, the Government and big business want (need) to keep the majority of Americans stupid about money.

 

I wrote the following to a college President:

 

 

What has baffled me is why "money"  (i.e., credit) is not taught in high school.  It should be an integral part of basic mathematics.   I guess that big government and big business want to keep Americans as dumb as possible about money.  Government, because consumption is about 70% of the economy.  Business, because they earn huge interest on loans by practicing usury.   Possibly, you might suggest to the Education officials in Montpelier that they integrate "money teaching" into high school and middle school.   Today, most parents lack the basic understanding of money.  No one taught them.  And, they can't teach their kids.   America is being destroy by a contagion called DEBT.  In health class, you teach kids to wash their hands and cover their mouths when coughing.  You do that to help prevent the spread of disease and maintain good heath.  Why can't we teach people to avoid debt, just like we teach them to avoid disease.

 


Thu, 01/13/2011 - 13:38 | 873400 Bull Meat
Bull Meat's picture

I mostly agree with you about the responsibility that borrowers have (though even there it's not so black and white when you're playing in a ponzi game -- whether or not you know that you're playing that game).  However, I argue that banking fraud goes beyond the matter of loan assignment.  Karl Denninger has repeatedly been on the topic of securitization representations (for example, http://market-ticker.org/akcs-www?singlepost=2213113).  A valid argument could be made that bankers knew that the loans could not be satisfied but made them anyway because they intended to sell them.  Of course, to sell them, they had to lie about their quality.  That is fraud.

And the damage comes back onto anyone who purchased a home (defaulted or not) because the mass of home purchased on shakey credit drove up home prices.  Home buyers have had to pay much more than they would have if underwriting would have been sound.

Thu, 01/13/2011 - 17:01 | 874232 RockyRacoon
RockyRacoon's picture

And let's not forget that the big players are "strategically defaulting" on their big mortgages for office buildings, malls, and other property.  Oh... but that's just a business decision don't ya know.

Thu, 01/13/2011 - 13:43 | 873421 rocker
rocker's picture

I agree that foreclosures should happen. If they fail to pay, they should go bankrupt.

What you miss is the banks who wrote bad mortgages should fail and also go bankrupt if they do not have enough assets to cover. They wrote the bad mortgages so they could collect the fees for the loan and the fees to sell them to unknowing investors. Some from other countries. Greed is Not Good for taxpayers.

Hence the term:  "Moral Hazard"

It is not their money they loaned out. It is investors and bondholders. It is the CEO's responsibility to make sure their standards are high enough to write good loans.  You do NOT give 100k to 500k to someone who has no job. If they write a loan without enough down to cover a failure, then the bank should eat the bad loan. If the note fails it's the banks loss.  It is Bullshit for anyone to say the banks did not know which loans were bad. They did not care. There was so much demand for CDOs, MBS and SIVsthat the banks were willing to do anything to get a Fees for loan products. Some people never made a single payment. Actually, there were Promotions that the bank would make your first three months payments. Please, who is responsible for that kind of ponzi scam just to collect a fee. 

When I got my mortgage years back, which is paid off now, I had to verify that I had a job, of 4 years at that time,(required), mininum 20% down, and a income base that said the loan payment was less than 30% of monthly income.

Goldman Sachs even went further. They did it abroad and here with all kinds of SIVs. Knowing their products were bad they went to AIG for insurance. Hence, again it was AIG's responsibility to make sure they took on good product to write coverage. 

So our problem is with the banks more than the customers. Simple as that. Enough said. We want our bailout money back. 

Thu, 01/13/2011 - 17:05 | 874254 RockyRacoon
RockyRacoon's picture

There is a term of art in law: "Attractive nuisance".

If I leave my swimming pool open to the neighborhood kids and fail to prevent reasonable access to that pool, I am liable for a kid drowning in it.  I've created a hazard.

Where's the parallel in the mortgage options that were made to home buyers who were told lies about the terms and conditions of the loans?  What about the huge billboards advertising "No money down!"? 

Thu, 01/13/2011 - 13:44 | 873428 TruthInSunshine
TruthInSunshine's picture

Iacocca: Where Have All the Leaders Gone?

Iacocca: Where Have All the Leaders Gone?

American Empire | Books

Excerpt: Where Have All the Leaders Gone?

By Lee Iacocca with Catherine Whitney

04/11/07 "ICH" -- -- -Had Enough? Am I the only guy in this country who's fed up with what's happening? Where the hell is our outrage? We should be screaming bloody murder. We've got a gang of clueless bozos steering our ship of state right over a cliff, we've got corporate gangsters stealing us blind, and we can't even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, "Stay the course." Stay the course? You've got to be kidding. This is America, not the damned Titanic. I'll give you a sound bite: Throw the bums out! You might think I'm getting senile, that I've gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore. The President of the United States is given a free pass to ignore the Constitution, tap our phones, and lead us to war on a pack of lies.Congress responds to record deficits by passing a huge tax cut for the wealthy (thanks, but I don't need it). The most famous business leaders are not the innovators but the guys in handcuffs. While we're fiddling in Iraq, the Middle East is burning and nobody seems to know what to do. And the press is waving pom-poms instead of asking hard questions. That's not the promise of America my parents and yours traveled across the ocean for.

I've had enough. How about you? I'll go a step further. You can't call yourself a patriot if you're not outraged. This is a fight I'm ready and willing to have...

Thu, 01/13/2011 - 13:52 | 873447 Logans_Run
Logans_Run's picture

Bearster, your straw man is burning based upon a fuel of its own hyperbole.

Thu, 01/13/2011 - 14:16 | 873528 Problem Is
Problem Is's picture

+1111... Nice concise retort...

Thu, 01/13/2011 - 13:51 | 873452 atomicwasted
atomicwasted's picture

I doubt many posters here will disagree with your statements 1, 2, and 3.  However, they ignore an important 4 and 5:

4) some people were actually defrauded into taking loans that were different than they thought they were getting, as has been pointed out (with supporting dox) on this board numerous times.

5) if I owe you money, or if I owe someone money but don't know who that is due to actions of the lender, then some guy out of the blue doesn't have the right to take the collateral unless he can prove he's entitled to it. 

Thu, 01/13/2011 - 13:59 | 873478 shargash
shargash's picture

Nonsense. It takes two sides to make a contract. One side, the banks, are experts in what it takes to be able to afford a house (LTV ratios, debt-to-income ratios, etc. etc). The banks are at least as responsible as homeowners, even when they weren't committing mortgage fraud. But they were committing fraud. Not only did they aggressively persuade people that they could afford mortgages they couldn't, they doctored mortgage applications (often without the homeowner's approval!) to make them look like better risks. They also steered people who could afford a normal 30-fixed mortage into option arms and no-doc loans that were guaranteed to blow up when the rates reset. They steered prime and near-prime borrowers into subprime loans, so they could make more money off them (and making it more likely the borrower would default).

You either have no idea what you are talkign about, or you are a paid shill for the banksters.

Thu, 01/13/2011 - 15:22 | 873737 dracos_ghost
dracos_ghost's picture

I think if you replace mortgage/house with CDS, the argument cuts both ways for the banksters.

Thu, 01/13/2011 - 15:38 | 873796 rwe2late
rwe2late's picture

 gwar5

your self-congratulatory and  false scenario notwithstanding,

most mortgage payment troubles are due to job loss, or medical costs.

The forces behind job loss in a deteriorating economy, unreasonable medical costs, loss of equity in houses and other investments, ballooning interest rates, and the exposed lending practice trickery are not attributable to the mortgagee,

 - nor was the extent and outcome of the financial fraud and racketeering foreseen by any but the most perspicacious and belittled analysts.

Lastly, "righteous" is not the same as "legal".

 Your solicitousness for the banksters is overwhelming, and your solicitude for others is underwhelming.

As the saying goes  "The law, in its majesty, prohibits both rich and poor alike from stealing a loaf of bread, or sleeping under a bridge on a rainy night".

Thu, 01/13/2011 - 17:03 | 874250 TheBillMan
TheBillMan's picture

I believe you are missing a rather central point.  A little legal concept called "fraud in the issuance."  Basically, it means that it is fraudulent to give loans to people who you believe have little or no chance of paying it back.  There is always someone out there who will take your money if you offer it.  That is why banks have risk management departments.  But, of course, we turned those off during the housing bubble and the rating agencies just stamped "AAA" on top of any housing security that came across their desk.  At the height of the bubble, Citi KNEW that 80% of the mortgages they were bundling and securitizing were FRAUDULENT with mis-stated incomes, assets, and other such nonsense.  This has since come out in Congressional testimony. 

Now, why would a nice big ol' bank like Citi or Chase or Wamu want to do something like this?  Because they made money in the origination.  Then they made money in the bundling and securitization.  Hell, they even took out bets against the crap they packaged and sold to suckers I mean investors.  They made money.  Lots and lots and lots of money from this scam.  And when it all blew sky high, they new they could go sobbing to Uncle Bennie and he'd clean up the mess for them just like his predecessor Greenspan did.  The banks made money from the scam and then from the bailout.  Win-win.

Now foreclosing on your so called deadbeats has a few problems.  First, these banks put the same mortgage into different bundles and sold them off to multiple investors.  That's why folks are real leary about buying foreclosed properties.  There's a story I read about in Florida wher a man paid $300K CASH on a foreclosed property only to have it foreclosed out from underneath him by a second investor 3 months later.  Second, the mortgage was never properly conveyed along with the note in most cases to the eventual investors.  All this stuff was shredded and recorded with MERS, supposedly.  We now know that many of the mortgages exist only in someone's spreadsheet and the paperwork on the mortgage is simply gone.  Hence, the issue of robo-signers, rocket dockets, and people's homes being fraudulently foreclosed on (i.e. those with absolutely no mortgage whatsoever). 

So, herein lies the problem.  It's not just a bunch of deadbeats who took out loans they couldn't pay back.  It's not enough to simply say these people should just take their medicine.  They will in the end, believe me.  The real problem is the lending and securitization fraud that sat on top of this.  No one has been indicted, prosecuted, or sent to prison.  Not a single person.  They're just sitting up there collecting their record bonuses courtesy of the U.S. taxpayer.

That is why people are mad.  That is why people are sick of the system.

Thu, 01/13/2011 - 20:03 | 874832 LauraB
LauraB's picture

It isn't fraudulent to make a loan to someone that you don't think will be able to pay you back.  It is just stupid and bad business.  Under the law, both parties should have been held to their end of the bargain.  If the borrower doesn't pay, they lose the house.  The lender then takes the house and sells it to recover what it can, eating any losses.

The problem is that the government bailed out the banks with stolen taxpayer money.  Nowhere in the Constitution does it say that the government can use public (taxpayer) money to pay off private debts (mortgages).  If the government didn't unconstitutionally bail them out, the banks would have failed, as they should.  The borrowers would lose their houses as they should.  Also, the debt would not have been put on the backs of those who had nothing to do with the transactions.  The bailouts were not only unconstitutional, but immoral because they transferred the losses to people who were not responsible for them (those who actually paid off their mortgages and own their homes, renters, those paying their mortgages on time, and future taxpayers).  The problem is that the laws are no longer being enforced (at least with regard to those deemed too big to fail/jail).

Fri, 01/14/2011 - 03:56 | 875490 scaleindependent
scaleindependent's picture

You gotta read some W. Black.

 

You gotta read The Best Way To Rob a Bank is To Own One,
An interview: http://www.portervillepost.com/pdf/The_Best_Way_To_Rob_A_Bank.pdf

Thu, 01/13/2011 - 17:48 | 874438 PulauHantu29
PulauHantu29's picture

Bearster, Doth speaketh with Silver tongue.

 

 

Thu, 01/13/2011 - 20:27 | 874900 Bob
Bob's picture

Bearster, I don't expect that attitude to be changed by any of the facts, but if I'm wrong you might be interested in taking a look at this:

The Monster : How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis

Michael W. Hudson

Introduction:
Bait and Switch

A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles's Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody's signature.

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/10/25/how-a-gang-of-predatory-lenders-and-wall-street-bankers-fleeced-america-and-spawned-a-global-crisis.aspx

Fri, 01/14/2011 - 03:58 | 875495 scaleindependent
scaleindependent's picture

Thank you.

I would have thought this issue was masticated and regurgitated and understood already. But I guess noobies need to noob.

 

There is so much evidence out there: The Best Way To Rob a Bank is To Own One, by William Black.

An interview: http://www.portervillepost.com/pdf/The_Best_Way_To_Rob_A_Bank.pdf

Fri, 01/14/2011 - 09:37 | 875681 Bob
Bob's picture

Nice and concise.

Thu, 01/13/2011 - 12:42 | 873231 monopoly
monopoly's picture

Sad what has happened to this country because of greed, selfishness and me,me, me.

It will correct and it will be painful.

Thu, 01/13/2011 - 13:04 | 873288 CrashisOptimistic
CrashisOptimistic's picture

You are 1/2 right.

It will be painful.

It will not correct.  Oil is scarce now.  The party is over.

Thu, 01/13/2011 - 13:10 | 873311 pan-the-ist
pan-the-ist's picture

Painful for who?

Thu, 01/13/2011 - 12:42 | 873232 Revolution_star...
Revolution_starts_now's picture

The truth is, the federal government and the federal reserve are guilty of treason against the american people. That is a fact. The only question is can we hold them accountable?

So far the answer is no.

Any other questions?

Thu, 01/13/2011 - 12:59 | 873271 LoneStarHog
LoneStarHog's picture

TREASON is defined in the U.S. Constitution, and very narrowly so.  It was done for a reason.  There are numerous laws under which ALL can be charged and prosecuted.  Treason is not one of these, except in very unique and individual circumstances.

Thu, 01/13/2011 - 13:12 | 873323 Revolution_star...
Revolution_starts_now's picture

Oran's Dictionary of the Law (1983) defines treason as "...[a]...citizen's actions to help a foreign government overthrow, make war against, or seriously injure the [parent nation]."

Yes and nothing the federal reserve or the actions of the US government over just the last 2 years, has injured or created a "war" like state against the american people.

Yeah they just gave billions away, sunk us into unpayable debt, and destroyed the future of this country.

http://en.wikipedia.org/wiki/Treason

"Treason is not one of these, except in very unique and individual circumstances."

Seems all this cases are "unique" to me.

 

Thu, 01/13/2011 - 13:17 | 873335 LoneStarHog
LoneStarHog's picture
Article III - Section 3.

Treason against the United States, shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort. No person shall be convicted of treason unless on the testimony of two witnesses to the same overt act, or on confession in open court.

The Congress shall have power to declare the punishment of treason, but no attainder of treason shall work corruption of blood, or forfeiture except during the life of the person attainted.

Thu, 01/13/2011 - 14:33 | 873579 faustian bargain
faustian bargain's picture

Seems pretty straightforward. There's been plenty of adhering to the enemies of the States, and of giving them aid and comfort. All we need are two witnesses, and a willing Congress. (Which of course means it'll be a cold day in hell first.)

Thu, 01/13/2011 - 13:23 | 873353 SheepDog-One
SheepDog-One's picture

And in time of war, treason is punishable by death.

Thu, 01/13/2011 - 13:32 | 873378 Dr. Porkchop
Dr. Porkchop's picture

Is little Timmy G guilty of treason? Well, he did threaten to blow up America if he didn't get his new debt ceiling.

Thu, 01/13/2011 - 13:37 | 873396 SheepDog-One
SheepDog-One's picture

Its definitely treason to monetize the debt. Bernankes own words are proof he has committed treason, along with the rest of his accomplices.

Thu, 01/13/2011 - 13:42 | 873418 umop episdn
umop episdn's picture

Even if it isn't treason, we can call them 'enemy combatants' in an economic war. Works for me.

Thu, 01/13/2011 - 14:33 | 873580 SheepDog-One
SheepDog-One's picture

'Insurgents'. Works for me since thats what the banksters themselves call everyone theyre trying to kill.

Thu, 01/13/2011 - 14:46 | 873618 Dr. Porkchop
Dr. Porkchop's picture

Insurgents using IEDs.

 

Innovative Economic Devices.

Thu, 01/13/2011 - 14:32 | 873576 Revolution_star...
Revolution_starts_now's picture

Don't forget Hammering Hank with his martial law.

Thu, 01/13/2011 - 17:12 | 874299 RockyRacoon
RockyRacoon's picture

Debasement of the currency is punishable by death...

Thu, 01/13/2011 - 12:44 | 873242 Xibalba
Xibalba's picture

isn't refusal to enforce the rules the same thing as changing them?  SEC, CFTC, LBA, CME, onandonandonandon.....

Thu, 01/13/2011 - 13:43 | 873420 Byte Me
Byte Me's picture

@Xibalba

isn't refusal to enforce the rules the same thing as changing them?  SEC, CFTC, LBA, CME, onandonandonandon.....

No it's not the same. Non enforcement is dereliction, sometimes hiding as incompetence.

A changed rule is still 'enforced' (sic)

Thu, 01/13/2011 - 12:45 | 873244 cossack55
cossack55's picture

The answer, I believe, requires us to ask a zen-like question, "What is the sound of one hand clapping?"

Or

The answer, I believe, requires us to ask a zirp-like question,

"What is the sound of one hand stealing?"

Thu, 01/13/2011 - 12:49 | 873258 Armchair Bear
Armchair Bear's picture

ka-ching?

Thu, 01/13/2011 - 14:47 | 873625 Dr. Porkchop
Dr. Porkchop's picture

It can't be heard over the sound of Wall Street's other hand jerking itself off.

Thu, 01/13/2011 - 12:59 | 873270 Internet Tough Guy
Internet Tough Guy's picture

Do-overs are just another example of ignoring reality; they change nothing. 'Rules' may be within their control to change but outcomes are not. We are going to the same place regardless of what they do; deal with reality or reality will deal with you.

Thu, 01/13/2011 - 13:05 | 873292 Popo
Popo's picture

Exactly.  And this is exactly the reason that collapse is coming one way or another:  Deflation / Inflation -- who cares.  Prepare for the end game.  

In the end, they will attempt to change the 'really big' rules -- like moving to a new currency, or tapping into 401k's, or seizing gold.  All of which are *absolutely* on the table, right now.

Hiding one's head in the sand and pretending there is no problem, doesn't stave off the day of reckoning.

Thu, 01/13/2011 - 12:59 | 873273 JW n FL
JW n FL's picture

***** "There are no right or wrong views here. All sides are on equally firm intellectual standing." *****

and that is the fucking problem!

Thu, 01/13/2011 - 13:09 | 873304 cougar_w
cougar_w's picture

You can take issue with the original premise, because some views that might lack intellectual standing (price inflation during a depression and massive job losses) have instead standing as unconstitutional power grabs. If TheFed stops propping up the banks with theft of public funds and thus encouraging commodity inflation via malinvestment of those same hot-money bailout funds, deflation would hit us like a brick wall.

The Mafia has intellectual views too, but we still call them felonies.

Thu, 01/13/2011 - 13:36 | 873343 JW n FL
JW n FL's picture

***** "The Mafia has intellectual views too, but we still call them felonies." *****

Thanks, I dont know why it struck me as funny... but thank you none the less.

 

As for my ideas? on why everyone is going a different direction and they are all right?

As for my answer to the problems?

lets go back to the idea of felonies... who's rules? one man terrorist is another mans freedom fighter, fact.

as for... wall street, captial hill and "k" street... well if the mob... in any form... round that bunch of lying thieves up and sink them in the ocean.. it would be in fact a grand start.

But reality dictates... that the United States Marine Corp may frown upon this plan of mine and may even in some way, stop people from doing harm to the duely elected officials that do as they please instead of representing the people...

but thats not true either... the duely elected due, what ever they want! becuase the masses that elected them do not care and / or understand anything.

so, in a way... the Marines... by protecting the duely elected are correct in the sense that they are protecting what the people (majority) really want.

Be well and thanks for the giggle... not bad for a girl.

Fri, 01/14/2011 - 04:00 | 875497 scaleindependent
scaleindependent's picture

what?

Thu, 01/13/2011 - 14:02 | 873492 SheepDog-One
SheepDog-One's picture

Yep 'intellectual' dumbasses are the problem!

Thu, 01/13/2011 - 14:59 | 873658 JW n FL
JW n FL's picture

I dont like the facts either.

Thu, 01/13/2011 - 13:00 | 873274 williambanzai7
williambanzai7's picture

Thu, 01/13/2011 - 13:41 | 873412 Bastiat
Bastiat's picture

Sigmoid Fraud

Thu, 01/13/2011 - 13:01 | 873276 Cognitive Dissonance
Cognitive Dissonance's picture

When the state/world's currency and credit system depends entirely upon faith, stability can be manufactured simply be believing in the system. This includes ignoring dangers to the system. So if no one wishes to recognize the insanity because to do so will mean the end, all it takes is a collective and unspoken understanding to ignore the ugly truth and move along.

I've talked before about unspoken and silent conspiracies where there isn't one central coordinator making all the decisions and everyone comes together to collude. While most would say that I just described the PPT and the FED, they just pass out the sheet music. It's up to everyone else to accept it, study it and then agree to sing along. The FED is nothing without us agreeing to sing and dance.

In other words, while the Fed and others might be "a" central authority, ultimately everyone must decide on their own if they wish to go along. This requires a sort of collective or group Enlightened Self Interest where an entire population decides it's best to go along to get along. This isn't about morality or "right" but survival of the group to benefit each individual.

This is the control system. It places us all in a situation where we must make our own decision to dance as long as the sheet music is passed out because the alternative is collapse.

Thu, 01/13/2011 - 13:08 | 873301 CrashisOptimistic
CrashisOptimistic's picture

>>

This is the control system. It places us all in a situation where we must make our own decision to dance as long as the sheet music is passed out because the alternative is collapse.

>>

 

This is profoundly correct.  

And it's not even the bad news.

The bad news is the sheet music paper came from a paper mill and oil powers the cars that brought the  papermill workers to work.  Oil is going away.

So is the music.

Thu, 01/13/2011 - 14:05 | 873498 Problem Is
Problem Is's picture

"... depends entirely upon faith... believing in the system..."

Isn't faith and belief the realm of religions?

So where does "Crazy Chester" Greenspan's vaunted "rational markets" fit into an irrational belief system?

Thu, 01/13/2011 - 14:31 | 873568 steelhead23
steelhead23's picture

CD - I perceive you are arguing that the system creates the actors.  I mostly agree.  My view is that We the People have allowed the Elite to corrupt, not just various players on the stage, but the stage itself.  The combination of deregulation, lax or non-existent enforcement of the remaining regulation, and a willingness to confuse parasitic growth with organic growth, brought us to the catastrophe in 2008.  Since that time, abject fear has caused leadership to wholly side with the Elite to protect our now-corrupted system.

Yes, we need not sing along.  We could individually pay down our debts, withdraw our deposits from the big banks, stay out of the markets, reduce consumption and thereby force the corrupt system to collapse in the hopes we might recreate a better one.  While this concept is intellectually attractive, the pain the collapse would cause is a tad hard to champion.  Hence, I must agree with Mr. Martenson - this unsustainable "protect the TBTF at all costs" mantra will not change and eventual catastrophic failure is inevitable. 

Thu, 01/13/2011 - 13:01 | 873277 the rookie cynic
the rookie cynic's picture

As in all times, we must live in world as it is, not as we wish it to be. Chris has some good ideas. Thanks to his "reality check" I now have a year of food, fuel, and water storage for my family. Oh yeah, and a year supply of tin foil.

Thu, 01/13/2011 - 13:01 | 873278 whatz that smell
whatz that smell's picture

ROBOT: buy appl

ROBOT[x]: if ROBOT buys appl buy appl

RETURN

Thu, 01/13/2011 - 13:12 | 873324 HarryWanger
HarryWanger's picture

Two wealthy robots. That trade has worked incredibly well and will continue to do so. Robots aren't so dumb after all, huh?

Thu, 01/13/2011 - 14:01 | 873356 SheepDog-One
SheepDog-One's picture

You'll be lookin dumb one morning soon as Johnny 5 bitch slaps the hell out of you, furniture boy.

Thu, 01/13/2011 - 14:09 | 873507 LFMayor
LFMayor's picture

Good thing we purchased robot insurance...

"Robots are strong.  They will take your medications and use them for fuel.  Anyone who denies the existance of Robots may be a Robot themself"

Thu, 01/13/2011 - 14:19 | 873536 the rookie cynic
the rookie cynic's picture

Lots of ZH'ers don't like it when stocks go up. They feel invalidated. They don't like HarryWanger and Robo rubbing their noses in it. What many of these agree posters fail to realize, however, is that much of "American" stock market really isn't American anymore. They fail to see that the oligarchs are global.

Fat-cat bankers and CEOs don't care if the US standard of living slides; they have customers elsewhere. Capital is gonna rush around the globe in search of cheap labor, low taxes, and customers after all. Recently that has been places other than the US of A; a trend that will continue for the foreseeable future.

Robo and Harry detractors fail to see that the "American" stock market can rally even when living standards in the US (employment, wages, home-ownership etc.) head south. Put on some glasses if you're that myopic for God's sake.

There IS a recovery: V-shaped for the multinational, globalist elites, bought by POMO, HFT, fraud, and the extortion of the taxpayers.

It's an L-shaped depression due to global wage arbitrage, inflated food and oil prices, fiat-failure and fraud-closures for the rest of us.

Equities are going up for a lot of reasons: POMO yes, fraud yes, HFT yes. But lets not be foolish enough to cling to the idea that those in charge of big, global companies listed on "American" exchanges and the crony politicos that serve them give a rats ass where their profits and campaign contributions come from.

If America is dying, there's a bull market somewhere else. They'll exploit that. The growing disconnect between corporate profits and jobs continues because "America’s" corporations depend less and less on U.S. sales and U.S. workers. Their profits derive from other sources: (a) growing sales in China, India, and other fast-growing countries, and (b) slashed US payrolls. 

Stocks can rally even as the American "caboose" (as Peter Schiff calls it) is cut loose from the new engines of growth in Asia, Brazil, etc. (Until the oil runs out anyway.)

I'm not saying that any of this is just, but we have to deal with the world as it is, not at we wish it was.

http://therookiecynic.wordpress.com/

 

Thu, 01/13/2011 - 14:35 | 873582 Clampit
Clampit's picture

Good to hear someone else championing a new metric for the economic health of the USA. Personally I see the S&P as a better inflation indicator than any measure of our economy. Or am I reading too much between your lines?

Thu, 01/13/2011 - 16:32 | 874079 the rookie cynic
the rookie cynic's picture

Whether it's an inflation indicator or PTB recovery indicator remains to be seen. I don't pretend to know which, though it's probably a bit of both.

Thu, 01/13/2011 - 14:42 | 873608 faustian bargain
faustian bargain's picture

Those trolls get detracted not because ZH'ers don't see the 'recovery' that the oligarchs are enjoying, but because the trolls imply (and sometimes exply) that the recovery is real for everyone. ZH'ers don't need to don glasses to correct myopia; the trolls need to doff their rose-colored glasses.

Thu, 01/13/2011 - 16:34 | 874088 the rookie cynic
the rookie cynic's picture

True, but you've got to admit that things are funner around here with the trolls. By all means, let the troll bashing and baiting continue with reckless abandon.

Trolls bitchez!

Thu, 01/13/2011 - 13:02 | 873281 SheepDog-One
SheepDog-One's picture

Go ahead and change the rules that anchors now are floatation devices on the Titanic!

Thu, 01/13/2011 - 17:20 | 874327 RockyRacoon
RockyRacoon's picture

There seems to be little fundamental difference between the mortgage debacle and the current stock market perturbations.   First loot the middle class and then steal from the pockets of your fellow financial class brethren.  Movin' on up the class lines until there is nothing left.  As for the poor, they never had a chance anyhow.

Thu, 01/13/2011 - 13:02 | 873282 JW n FL
JW n FL's picture

It is absolutely fucking fantastic how the factions are chruned out and decidedly going in different directions never to be facing the same way, moving the same way... no progress, ever.

It was once said that I would rather be a sheep in an army led by a lion...

we are an army of lions, pushed, pocked and prodded like sheep.

to, too much Faux and MSN... to much lets just wait and see...

I am all for a peacful resolution, so was Kennedy.

Thu, 01/13/2011 - 13:03 | 873284 cougar_w
cougar_w's picture

He perhaps overlooks the roll of the taxpayer in all this. The reason the "rules" are there in the first place is to protect public funds from private interests. The Banks always wanted that money, but they couldn't get it. Now they can have all they want, forever, on the premise that this is how we save the Republic.

Is that really how we save it? I thought that was how we create a Corporatist Fascist oligarchy and destroy the Republic in the process.

But hey, what do I know.

Thu, 01/13/2011 - 14:23 | 873549 malikai
malikai's picture

Silly idealist. Never question god's work. The taxpayer's job is to pay taxes, not question authority or the system. Also, saying corporatist or fascist is racist. Are you trying to slander the Obama? Didn't you hear that he is bringing us the change? Now turn on CNBC, buy the fucking dip, and gaze upon the endless green shoots in our newly found inflationary recovery and prosperity.

Fri, 01/14/2011 - 13:21 | 876420 JW n FL
JW n FL's picture

luv that, still cleaning up... after choking up my coffee all over my key board!

 

God's Work Bitches!!!

Thu, 01/13/2011 - 13:06 | 873291 Dr. Sandi
Dr. Sandi's picture

Let me stand on the porch and bark at the silence once again. There is NO WEALTH unless it is created by the productive labor of people. When a society has 1/4 of its workers idled, there is less wealth being produced than is being destroyed.

We can blow hot and cold about whether extend and pretend works. But eventually, the lack of sufficient numbers of people creating wealth means the system falls apart.

It doesn't matter if everybody plays nice and agrees not to default, not to miss payments, not to sue and to eat all their carrots. Food is still being eaten, fuel being burned, infrastructure falling down, and life generally going on around us. This burns wealth.

If replacement wealth isn't created by sufficient human labor, the system slowly grinds down to nothing.

It doesn't matter how much paper is shuffled, how much gold is stashed or how clever the most current financial fraud might be. We're running on the wealth we've already created, and running it down to dangerous levels.

Yes, it IS going away. Yes this WILL all end. Precisely because it seems that most of us don't understand where it comes from in the first place.

We don't have jobs because that's the best thing we could think of to do with our time. We have jobs so we can produce something that will allow us to stay warm, clothed and fed for awhile. Where is the disconnect here? Printing green sheets of paper doesn't do the job, and it's not actually a job anyway.

Now everybody, get back to work. I'm hungry.

Thu, 01/13/2011 - 13:05 | 873293 soesbandit
soesbandit's picture

This market is a joke when you allow the bullshit trading that takes place every day in stocks like NOV.  Look how many times today some program picked up 40-50 cents on market orders in NOV.  Trades were filled through the book 50 cents lower on ARCA.  The fact that they allow this is absurd.  What happened to NBBO and the order handling rules?

Thu, 01/13/2011 - 13:06 | 873296 flacorps
flacorps's picture

Eventually, Americans exhausted by bank$ter deprededations will band together in an organization mirroring Mexico's successful "El Barzon" movement and the Dems and Reps will be out in favor of a slate of populist candidates who can and will dismantle the Wall Street/D.C. syndicate. At that point, the dollar will no longer be the world's reserve currency and the U.S. will have to rebuild its economy with its own resources  (which remain considerable) in the manner of post-Weimar Germany (hopefully without a fuhrer and holocaust). Bank$ters elsewhere will be left to foment internal social divisions in the hope of regaining control (a la the Civil War or the campaign against apartheid in South Africa) or to trump up a cassus belli to invade this country from outside.

Thu, 01/13/2011 - 13:07 | 873298 pan-the-ist
pan-the-ist's picture

My heart goes out to the small time money changers who are unable to compete.  May they find renewed success in a street corner payday loan business.

Thu, 01/13/2011 - 13:07 | 873299 Daren327
Daren327's picture

The way in which the entire mortgage business assisted un-credit worthy people buy houses and pushed interest only loans and bent and broke rules effected the entire housing market and its not much of a stretch calling this a fraud. 

 

Now while I agree everyone is responsible for there own individual economic decisions, some of the people involved were (are) truly clueless; they were the sheep for the mortgage broker/real estate agents, etc. wolves.  And the mess created effects all of us -- well all of us except the big banks who can just give their worthless paper to the Fed.

Daren

Thu, 01/13/2011 - 13:09 | 873306 Gloomy
Gloomy's picture

WASHINGTON (MarketWatch) -- Seeking to combat manipulation and speculation, the Commodity Futures Trading Commission on Thursday voted to propose a rule that would restrict the number of commodity futures and option contracts that any investor can hold in energy, agriculture or metals derivatives. "Position limits help to protect the markets both in times of clear skies and when there is a storm on the horizon," said CFTC Chairman Gary Gensler. The proposal was introduced by a vote of 4-to-1.

Thu, 01/13/2011 - 13:09 | 873308 Caviar Emptor
Caviar Emptor's picture

Alternative view to Chris's: they're only playing a game of kick the can and nothing was solved in the response to the crisis. After the deflationary collapse of the great depression, GDP growth hit a torrid pace starting in 1933, something we'll never see. Creative destruction resolved inefficiency and maladaptation. By the end of the decade the US had it's mojo fully back and was on the cusp of proving itself the super power of the developed world and the undisputed leader for the balance of the century. The middle class was reinvigorated and new entrants were allowed to succeed.

We will never see any of the benefits of a reinvigorated economy because the rot was allowed to spread and corpses were revived like Frankenstein's monster (AIG, C, BAC, MER, GM, to name but a trifle). There are no new entrants and opportunities are narrower as a result of the crisis, not wider. The middle class is shrinking. The entire economy is being downsized structurally with non-stop layoffs, offshoring and capital flight. And still the debt, instead of being repudiated, will hang over the economy for decades to come. I could go on but it's all too depressing.

Thu, 01/13/2011 - 13:16 | 873329 no cnbc cretin
no cnbc cretin's picture

Agreed.

Thu, 01/13/2011 - 13:39 | 873405 sschu
sschu's picture

... they're only playing a game of kick the can and nothing was solved in the response to the crisis ...

This is the real crime, and we can lay it at the feet of our political leaders.  The direction the bankers etal would take is obvious, extend/pretend and off-load the toxic assets to the tax payers.

If instead our politicians would have taken advantage of the opportunity to clean-up the mess, prosecute the guilty and put the country on a path of fiscal sanity, then the pain would have been over by now. 

We had a great chance to "fix" what ails us, corruption, lousy education system, tax structure, tort reform, government budget insanity, etc.  We could have used the Fed etc to get the country back on good footing without a lot of starving people and blood in the streets.

By kicking the can we have insured that we will experience both and much more to a far greater degree.

sschu

Thu, 01/13/2011 - 13:11 | 873319 SwingForce
SwingForce's picture

Let me ask this question: How will the banks hide the losses from the sale of repossessed homes?

Last year there were 1 million foreclosures, and I estimate the losses are $100,000 per house (is this too high?) anyway, that's $100 Billion in losses, right? And another 2.9 million foreclosure filings, repossessions yet to com, triple last year! $290 billion in losses. How on earth can the banks hide this? Or have they already dumped these moprtgages on Fannie & Freddie?

TARP bailed the banks out on the securities they issued with these mortgages, now the mortgages and repossessed houses need to be dealt with. Am I missing something here? Won't these losses render the banks insolvent and ruined?

Thu, 01/13/2011 - 13:20 | 873344 cougar_w
cougar_w's picture

1) They don't put the homes on the market at all. The pipeline of forclosed homes is a year deep or more already.

2) Financial innovation, of course. They'll bundle up their losses as some kind of tranche worth pennies on the dollar (or even negative pennies) and sell it to the Fed at par for an immediate loss to the taxpayers.

CM is correct; so long as they can make new rules and "innovate" their way out of this, it's all good. The loss is to the taxpayers and future generations. Not a problem for these guys at all. Privatize the profits, socialize the loses. A Corporatist's wet dream.

Thu, 01/13/2011 - 13:30 | 873372 Cognitive Dissonance
Cognitive Dissonance's picture

And as long as current and future generations all recognize that as long as they ignore the bad news, the system can be made to limp along, that will be the reasonable and logical decision to make.....assuming your interest is only in avoiding short term pain.

The system runs on belief and faith, something that can be manufactured at will by the will of the people. Everyone points to the bad FED. The FED ain't nothing without our willing consent.

Watch "Manufacturing Consent" for a primer on how it's done.

http://www.hulu.com/watch/118171/manufacturing-consent http://www.youtube.com/watch?v=OJuqoDvyXOk
Thu, 01/13/2011 - 14:19 | 873539 cougar_w
cougar_w's picture

Elmer T. Peterson (1951) misquoting (or perhaps mis-attributing) Alexander Tytler (c1800):

"A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."

And .... we're there. I give it another 10 years, tops.

Thu, 01/13/2011 - 14:34 | 873581 Cognitive Dissonance
Cognitive Dissonance's picture

How is the next chapter of my two favorite females coming along? I can't wait. In fact, I think I'm beginning to obsess.

Is this how an iFanatic feels waiting for the next product launch from iGod? :>)

Thu, 01/13/2011 - 14:54 | 873644 cougar_w
cougar_w's picture

Hah. It's been "done" about 4 times already. I keep not liking parts of it. A very complicated little bit of work, but I'm enjoying the process. Diamond off her leash is always a treat but slightly dangerous to the touch. And when it's Christmas day and she's entirely unwound and channeling The Unmaker ... well what can I say? The world can only hope to contain a certain amount of charming annihilation before things start to come apart. The angel and the demon locked in a chapel and the snow falling and the blood flowing and flowing as if the earth itself were bleeding. This just cannot end happily, can it?

Extinction is forever, bitchez.

Thu, 01/13/2011 - 14:47 | 873624 faustian bargain
faustian bargain's picture

Did Tytler say that before DeToqueville said this?:

"The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

Probably so, but I just thought it was an interesting quote.

Fri, 01/14/2011 - 04:08 | 875503 scaleindependent
scaleindependent's picture

First mentioned by Plato in The Republic, while discussing what political system is best. As you know, his choice was philosopher-kings and the reason why he dissed democracy is a paraphrase of your statement.

Thu, 01/13/2011 - 14:45 | 873617 malikai
malikai's picture

Noam's one of the most brilliant minds out there. It was his and a few other's books which showed me the light.

Thu, 01/13/2011 - 13:12 | 873325 no cnbc cretin
no cnbc cretin's picture

The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that.

 

Give it time, it will happen.

Thu, 01/13/2011 - 13:13 | 873327 JW n FL
JW n FL's picture

Their rules dont change!

Your rules change!

Face the facts!

Thu, 01/13/2011 - 13:28 | 873367 SheepDog-One
SheepDog-One's picture

Yea 'the rules' dont change for the multi bazillionaires, as they have no rules and never did. The rules change for the peasantry as treason is carried out against them by the govt as they watch gas go up to $5 and above and food rockets up, while all their 'assets' main one being their house plunge.

Thu, 01/13/2011 - 13:33 | 873379 JW n FL
JW n FL's picture

Yes.

Thu, 01/13/2011 - 13:39 | 873402 SheepDog-One
SheepDog-One's picture

Also no amount of 'rules changing' can avert reality...as they say its a bitch.

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