Momentum Grows for Debt Repudiation

George Washington's picture

As I noted in November:

Debtors are revolting against exorbitant interest rates and fees and other aggressive tactics by the too big to fail banks. See this, this, and this.


Congresswoman Kaptur advises
her constituents facing foreclosure to demand that the original
mortgage papers be produced. She says that - if the bank can't produce
the mortgage papers - then the homeowner can stay in the house.


Portfolio manager and investment advisor Marshall Auerback argues that a debtor's revolt would be a good thing.


And even popular personal finance advisor Suze Orman is highlighting the debtors revolt phenomenon on her national tv show.

Walking away from home mortgages has actually become mainstream, being trumpeted by:

  • Many others

In addition, as I pointed out in February:

is an established legal principle that people should not have to repay
their government's debt to the extent that it is incurred to launch
aggressive wars or to oppress the people.

Matt Taibbi wrote Monday:

powerful as these Wall Street banks may seem, they are also exquisitely
vulnerable. Right now virtually all of them are dependent upon the
government keeping accounting standards lax enough for all of them to
claim to be functional businesses. It is generally accepted that if the
major banks on Wall Street were forced to mark all of their assets to
market tomorrow, they would all be either insolvent or close to it.


their “healthy” financial status is already illusory. So imagine what
would happen if large numbers of those dubious loans on their balance
sheets that they have marked down as “performing” were suddenly pushed
ahead of time into the default column. What if Greece, and the
Pennsylvania school system, and Jefferson County, Alabama, and the
countless other municipalities and states that are wrapped up in these
corrupt deals just decided to declare their debts illegitimate and back

I think it’s an interesting question and would like to hear
what knowledgeable people in the field have to say about it. But the
big picture, to me, is that these companies are almost totally
dependent not only upon the continued good faith of aggrieved debtors,
but upon the government recognizing the (sometimes fraudulent) loans
made to those debtors as fully performing.

Similarly, Gregor MacDonald argued in February 2009:

The private sector debt in the United States exerts the same power over
the banking system as the public debt of the United States exerts over
our international creditors. Collectively, the debtors are in control.
Not the creditors. This is why the the Creditors, not the Debtors, will
be making most of the concessions in the years ahead. Whether the US
public debt is inflated away, rescheduled, or repudiated–or some
combination of all three–it doesn’t matter much. The process is already

Former Managing
Director and board member of Wall Street investment bank Dillon Read,
president of Hamilton Securities Group, Inc., an investment bank, and
former government servant Catherin Austin Fitts wrote Tuesday:

up “fraudulent inducement.” My position as the former Assistant
Secretary of Housing-Federal Housing Commissioner and then as lead
financial advisor to the U.S. Department of Housing and Urban
Development is that the majority of the mortgages originated in the
United States after 1996 were fraudulently induced.


The way to
deal with criminals is to treat our contracts with them in a manner
reciprocal to how they have treated their contracts with us.


a growing movement to abrogate contracts with institutions who have
broken the law be disruptive? Yes. Will that require painful
adjustments? Yes. That is the price we pay to deal with the challenges
we face. This includes the fact that the banks have sold criminally
originated debts to our pension funds and retirement accounts as well
as to allies and institutions around the world.


It is much less
painful, however, than the price we will pay if we continue to operate
by a double standard whereby large institutions and a small group of
people are permitted to live and operate above the law. So let’s
address the lawlessness in the financial sector, face the national
security issues involved in using our financial markets for economic
warfare and begin the transformation.

Austrian economist Murray Rothbard wrote in 1992:

I propose ...
out-right debt repudiation. Consider this question: why should the
poor, battered citizens of Russia or Poland or the other ex-Communist
countries be bound by the debts contracted by their former Communist
masters? In the Communist situation, the injustice is clear: that
citizens struggling for freedom and for a free-market economy should be
taxed to pay for debts contracted by the monstrous former ruling class.
But this injustice only differs by degree from "normal" public debt.
For, conversely, why should the Communist government of the Soviet
Union have been bound by debts contracted by the Czarist government
they hated and overthrew? And why should we, struggling American
citizens of today, be bound by debts created by a ... ruling elite who
contracted these debts at our expense?




Although largely forgotten by historians and by the public,
repudiation of public debt is a solid part of the American tradition.
The first wave of repudiation of state debt came during the 1840's,
after the panics of 1837 and 1839. Those panics were the consequence of
a massive inflationary boom fueled by the Whig-run Second Bank of the
United States. Riding the wave of inflationary credit, numerous state
governments, largely those run by the Whigs, floated an enormous amount
of debt, most of which went into wasteful public works (euphemistically
called "internal improvements"), and into the creation of inflationary
banks. Outstanding public debt by state governments rose from $26
million to $170 million during the decade of the 1830's. Most of these
securities were financed by British and Dutch investors.

During the deflationary 1840's succeeding the panics, state
governments faced repayment of their debt in dollars that were now more
valuable than the ones they had borrowed. Many states, now largely in
Democratic hands, met the crisis by repudiating these debts, either
totally or partially by scaling down the amount in "readjustments."
Specifically, of the 28 American states in the 1840's, nine were in the
glorious position of having no public debt, and one (Missouri's) was
negligible; of the 18 remaining, nine paid the interest on their public
debt without interruption, while another nine (Maryland, Pennsylvania,
Indiana, Illinois, Michigan, Arkansas, Louisiana, Mississippi, and
Florida) repudiated part or all of their liabilities. Of these states,
four defaulted for several years in their interest payments, whereas
the other five (Michigan, Mississippi, Arkansas, Louisiana, and
Florida) totally and permanently repudiated their entire outstanding
public debt. As in every debt repudiation, the result was to lift a
great burden from the backs of the taxpayers in the defaulting and
repudiating states.




The next great wave of state debt repudiation came in the South
after the blight of Northern occupation and Reconstruction had been
lifted from them. Eight Southern states (Alabama, Arkansas, Florida,
Louisiana, North Carolina, South Carolina, Tennessee, and Virginia)
proceeded, during the late 1870's and early 1880's under Democratic
regimes, to repudiate the debt foisted upon their taxpayers by the
corrupt and wasteful carpetbag Radical Republican governments under

Ambrose Evans-Pritchard wrote in 2009:

In the end, the only way out of all this global debt may prove to be a
Biblical debt Jubilee.

Economist Steve Keen is also calling for a debt jubilee, stating:

We should write the debt off, bankrupt the banks, nationalize the financial system, and start all over again.

We need a twenty-first century jubilee.

going into] a never-ending depression unless we repudiate the debt,
which never should have been extended in the first place.

If we
keep the parasitic banking sector alive, the economy dies. We have to
kill the parasites and give a chance to the real economy to thrive once
more and stop the financial [crooks] doing what they did this time
around ever again.



And Michael Hudson - who also calls for a debt jubiliee -  wrote yesterday:

The only way to resolve the [European debt crisis] is to negotiate a debt write-off...

most cynical (but not necessarily inaccurate) view of debt I've seen is
that banks loan out imaginary money they don't really have, which was
"collateralized" by capital they did not really have, based upon
central bank printing presses which create money out of thin air which
they don't really have. But then when debtors have trouble repaying
onerous loans, the bankers seize real assets. See this and this.


In First National Bank v. Daly (often referred to as the "Credit River" case) the court found that the bank created money "out of thin air":

president of the First National Bank of Montgomery] admitted that all
of the money or credit which was used as a consideration [for the
mortgage loan given to the defendant] was created upon their books,
that this was standard banking practice exercised by their bank in
combination with the Federal Reserve Bank of Minneaopolis, another
private bank, further that he knew of no United States statute or law
that gave the Plaintiff [bank] the authority to do this.

The court also held:

The money and credit first came into existence when they [the bank] created it.

(Here's the case file).


courts are just local courts, and not as powerful or prestigious as
state supreme courts, for example. And it was not a judge, but a
justice of the peace who made the decision.

But what is important is that the president of the First National Bank of Montgomery apparently admitted that his bank created money by simply making an entry in its book ...

The judge voided the mortgage, since he found that the bank hadn't given any real consideration, but simply created money out of thin air.

In other words, according to the most cynical view, the entire debt-money system is a scam ... and should be repudiated.


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Pondmaster's picture

I would enjoy seeing the big banks take it on the chin . see them go bankrupt and disappear . That said it seems a little unbalanced , to have those that have paid thier obligations , that are out of debt through wise financial living over the last 3 decades , to sit by and watch deadbeats walk away from the debts they with eyes open incurred . There is such a thing as personal responsibility , character , and honesty . Most importantly there is WAGE GARNISHMENT . Enjoy your cash job painting houses and doing lawn work . Cept well , the illegals are already doing it for less than you will . You can run , but you can't hide . This is all such a joke , weasles trying to weasel out on both sides .  

Mr Lennon Hendrix's picture

Buy silver snitches!  Then put the top down.

"I got my jewelry on me.  I got my security on me."

Swizz Beatz - Top down:

trav7777's picture

I'm glad to see these memes I pound on here getting picked up.

Things get even worse, though.  Synthetic debt instruments are a plague.  Supposing a bank sells a CDS, they were then tranching the payment streams from the CDSs they wrote and reselling that, then netting out.

The entire GDP in this manner was for a decade wholly fictitious.  You think they're on the hook for IRS?  Nope.  They AGAIN tranched the payments streams in CDOs and sold those off.  So when/if the swap blows up, it is not the bank on the hook, the CDO junior tranches go to zilch.  It's not just the bank that goes down.

All I wonder is are we actually going to LET accountants and "economists" with their ledgers saying that we ostensibly OWE them, and in this case, they are asserting at the lowest level that we OWE THEM real production and real assets on the account of what they have on a piece of paper, an accounting ledger, because they have "let" us use paper currency!??!?!

That is our monetary system AT ITS CORE.  Banks take a share of REAL production in exchange for being ordained as the SOLE sanctioned issuers of currency!

Currency is a national asset, but it was ceded to private banks. Think the 1840s were bad?  Look at what the BOE got the British Gov't into over the years.  They have 300 years now of exponential compounding on just the USE of money.

Our dollars got pulled and were replaced by FRNs LENT to us.  By a bank that had what?  Look into the history of the's pretty clear that this institution was chartered with fictional assets, and whatever capital they had was almost IMMEDIATELY backed out, or obfuscated - the original ENRON.  They pulled BS with stock certificates and accounting games within a decade or so of their founding.

This is the banking model - they "let" us use their notes as currency for a compounding fee called interest.  If YOU use money, and I abstain, they force you to find someone else willing to go into debt, borrow from them, pay you, so you can repay with interest.  This is the entire system.

Supposing the banks put up some gold as original capital, after a few generations of lending, they back that gold out and all that is left in terms of assets are the BOOKS.  The money "owed," collateralized by YOUR property. 

The deflationists are a confused lot:  they simply MUST take a look around and see who has the most cash.  Where are the trillions in reserves?  They're not in my accounts or your accounts.  If there is a wholesale liquidation, and "cash" becomes scarce, who do you really believe will get access to credit (what cash really is) to scoop the real assets up?

The elites will.  That is what Jefferson was talking about. 

B9K9's picture

In other words, according to the most cynical view, the entire debt-money system is a scam ... and should be repudiated.

George, there's this little book called the Bible that chronicles about 5,000+ years of human history. There are countless admonishments against the practice of usury that ALWAYS lead to money-lenders taking possession of forfeited real property that was pledged as collateral.

I think many would be hard pressed to characterize this tome as "cynincal". On the contrary, it speaks across thousands of years warning future generations to beware of crimes yet to be committed.

The credit money system at its core is a fraudulent construction. Compounding principle+interest can never be repaid. Basic exponential math dictates that interest expense will always outrun income.

There is not one instance recorded in history where lenders bemoan their fate resulting from usurious practices - the lamentations are always those of borrowers.

trav7777's picture

Yet, WE the little people constantly look at the numbers on "money" as wealth.  If an elite goes from a billionaire to a millionaire, what does it matter if he owns everything real?

Elites own productive assets, we own paper "shares" of shell games.  Look at Carlos Slim...he's got cell towers and real wirelines up and down the Americas.  What does it matter to him the denomination of these assets?  What they net him is a share of all the work of all the millions of people who want to use his infrastructure.  Valued in pesos, dollars, seashells, whatever.

The entire job of banks is to obfuscate what money get people chasing it and loving it, while they focus on cheating the land out from under your feet.  They'll own the assets while we are all zimbabwe trillionaires.

hamurobby's picture

Just one thing. Im not a fan of any of this, but Im a realist. either its hyperinflation or debt repudiation or what ever the medicine will be, I MUST defend my wealth, for me and my family. Then I worry about the Country, government, etc. Its not about being right or wrong, and should we not be worrying about preserving any wealth we have through the coming crisis? If I am caught off guard, holding the title to my house and then the supreme court decides that "if you live there its yours" or money hyperinflates, and I miss an opportunity to get a morgage and buy a handfull of gold, well thats too bad for me and everyone else who missed it. Denial and anger are stages of acceptance, been there and done that on the end game coming. Knowing about the possibility of repudiation is another tool in my toolbox of keeping the most I can, thanks GW :-)

Crab Cake's picture

I say fuck'em, let the creditors eat shit. 

They can only pile so much up on our government before the house comes down on all, them and us.  Since we are already in a world of shit, let the house come down; I care not.

What would Goldman Sachs do?

Hand it off people.  Dump it if you can.  Walk away if it suits your situation, ASAP.

Do your homework, and then say it with me... "Fuck'em, let them eat shit."  Go max that credit card, and take delivery for yourself of some physical gold and FRN's.  Go ahead and skip a couple of months mortgage payments to get that modification.  You can do it.

Nothing could be more American. Nuts! 

sgt_doom's picture

And please, don't hesitate in sharing your thoughts with the Financial Crisis Inquiry Commission -- so few are aware of their existence -- go figure???


RockyRacoon's picture

This is supposed to be our modern equivalent of the Pecora Commission.  Time will tell.

I think in the long run some folks will go to jail, but don't expect the same corporate/political cleansing that occurred in the 1930s.

Printfaster's picture

Hey it is easy for Obama to repudiate the US debt.

All he has to do is say: "It's Bush's debt", and walk away.


Cyan Lite's picture

I personally would love debt repudiation.  I have about a half million owed in student loans, mortgage debt, credit cards, furniture loans, and the silly credit lines they give at those department stores for 20% off one purchase.

It's about time we get some kind of populist bailout, after giving the bankers several trillion...

gilligan's picture

"I personally would love debt repudiation.  I have about a half million owed in student loans, mortgage debt, credit cards, furniture loans, and the silly credit lines they give at those department stores for 20% off one purchase.

It's about time we get some kind of populist bailout, after giving the bankers several trillion..."


I'm assuming this is with sarcasm switched on. 

DosZap's picture

I find it rather amusing, that the Gv't, is doing the same thing to folks forced to pay SS,Medicare, and Medicaid.

WE get a cut in benefits (because of their fiscal criminality).......

IOW we get screwed, our money stolen from us paid in over a lifetime, and we get a bloody assho**,and an IOU NADA.

Yet,the Banksters, the TBTF's, get bailed?.So, there's the stolen money, and then some.

So, who is really getting what they love to call  Entitlements?.

Not only do we get it once, we get it twice.............Soylent Green.

trav7777's picture

You want to see even worse?

Take a look at the price chart of ARLP or KMP.  These are MLPs that produce real goods and have real cash flows irrespective of the frothiness of economic "activity."

Look at how they were beaten down during the liquidation of the meat of the 2008 deflation.  Yields up to like 14% despite KMP for example taking a share of natural gas moving through pipelines, which will move even in a national collapse just to keep the heat on.

Someone was selling and someone was buying down there at the trough.  Ask yourself this:  who had the cash then?  Who had access to 0% "loans" which is basically a gift of cash?  Remember credit IS money in our system; the two are fungible.  So, when TSHTF in the banking system, YOU could not access cash/credit, whereas the biggest pigs had this thing called the discount window and they made, what, half a DOZEN alphabet soup programs for them to get access to MONEY.

If the deflation comes back, the trillions in reserves parked at the Fed are going to come out and play.  They will be in the hands of the vultures looking to scoop up productive assets.  At the lowest level, "money" is useless...look at the vast holdings of the Rothschild banking family, all the chateaus...that is real.  You can't live in money or drive money or eat money.  The elites don't care if the number is a billion or a trillion so long as they have the REAL stuff, the wells, the mines, the land, the gold, the helicopters, the art, the chateaus.  And you go out and make sure the wine keeps flowing by tending their vineyards so that they can enjoy all of it.

velobabe's picture

kinder morgan has blood on their hands. i know those two texans. bill morgan and rich kinder. i owned KMP and was doing well with the high interest return. had to sell when i realized they are the elite taking over thousands of acres of land in colorado and running out all of the wildlife and us peons, so they can build their mansion compounds to bunker in after they rape and pillage everyone and everything. i wouldn't say i was a big social responsible investor, but i can't stand all the blood dripping. all these guys are in with the bansters, just taking large earth moving equipment and rearranging the earth to suit their greedy needs. they get their building permits pushed through without any problem and than they grow a little hay and don't have to pay a dime in property taxes, if using the land for agriculture. these bastards are just so clever. i look at my life before ZH and after ZH. give me an acronym, BZH - AZH.

sgt_doom's picture

Indeed, AIG and company do the largest insurance swindle in history, writing all those credit default swaps (not to mention reinsurance with notes added), take the fees and walk away, with Johnny and Joanie Taxpayer picking up the tab.

Robert Rubin (after pushing for all that predatory legislation to make cause it to happen), makes hundreds of millions at Citi, which does all those CDOs with written-in liquidity puts (meaning they have to buy them back at same price they were sold, if they go bad and buyers want their bucks back), and walks away with his super bucks, while Johnny and Joanie Taxpayer have to pick up the tab.

Now what ever could be wrong with this picture?

And don't give me that urban legend that it was all legal (major violations of securities laws, Federal Reserve Act and Trust Indenture Act).

QQQBall's picture

Yes Cyan, its about time that Jiangxi Dad paid for your home furnishings.




Rick64's picture

I'd rather pay for his than the TBTF's bullshit scam. I have lived within my means also and owe no debt. I am fortunate to have a well paying job and enough income to live comfortably, but the government wasting my tax dollars on all these banks is really disgusting. Then they are given a break but the homeowners are held to a high moral and ethical standard. Pure Hypocrisy.

Hammer59's picture

Hey Gilligan....I was born in San Francisco, CA in 1959. The population exploded here, and I faced the same insane real estate prices. When they bonked in 1990-92, I had my chance---I had been driving older cars and saving since the age of 18. When I finally did buy a home, the tax advantages were significant. Still, I added extra money to the principal and paid the 30 yr. 9.5% fixed mortage off in 13 years.

You can do it too. Keep saving, and keep your powder dry.  You'll get your chance.

gilligan's picture

Thanks for the story H59.  I know the day'll come, just got to stay patient and stay rational (everyone I know says I'm unrealistically pessimistic about property, LOL!).  Bubble fever. 

QQQBall's picture

The interesting part is that its presented as if debt repudiation would somehow be voluntary. The debt is bad, the question is when, ot if.  

JiangxiDad's picture

My first comment here. Will prob. be banned 4 it, but fuck all of you debt repudiation fans. I'm 54, own two modest houses free and clear, have 1 credit card with a zero balance, drive a 12 year old car, wear 15 year old clothes, have never been to a starbucks,  don't own a cell phone, a flat screen tv or even have cable. I use one airconditioner at a time--sometimes, keep the heat at 67, and find that formica works for kitchen counters.  I played by all the rules, paid my taxes and bills on time every time. I live deeply beneath my means. Don't give me "fiat" and "ponzi" as reasons why you should get shit for free that I paid for largely by forgoing many luxuries you currently have. Some of you sound as bad as these goddamn criminal politicians and bankers. In my version of a just society, we get what we work for, and clean up our own mistakes. Declare bankruptcy if you want--that's a gift to you in and of itself, but no fucking whining about how you deserve the house you're living in that you never even fucking paid for in the first place. How the hell is an argument that you didn't know how much you were borrowing or what your interest rate was or what your payment would be believable? If you're such a cretin, how do you answer the math ques. to post your comments?

Kreditanstalt's picture

Well said, JiangxiDad!

Anyone borrowing for any purpose whatsoever has total responsibility to take into account future interest rates, losing their job, currency turmoils, central bank actions, corrupt or sleeping regulators or WHATEVER. 

Debtors now have to suck it up or watch their currency and living standards approach ZERO. 


Bam_Man's picture

This is an entitlement society crammed full of "Manchurian consumers" each thoroughly brainwwashed by hundreds of thousands of hours of advertising. Everyone in the entitlement society wants something for nothing and will find a way to rationalize this behavior.

The cultural decline that began 50 years ago has delivered us to this sorry state.

Get ready to live in a society where there is no integrity, no morality, no rule of law. Just the iron fist of government under martial law.



Rick64's picture

Well you have deserved the right to point your finger. Living within your means as everybody should. Now if we could just get our government to do that. Since we don't seem to be able to do that and we have to bail out every goddamn TBTF while making the taxpayer accountable for their mistakes. Meanwhile their taxes will go up to fund the TBTF bailout. I find the double standard intolerable. I would rather my fellow taxpayers get some relief by any means possible. Hold us the taxpayers to the same accountability rules or morals that the corporations, banks, and politicians are held to and we don't have any problem. Irresponsible perhaps, but no more than the TBTF and politicians, government, or corporations.

Hammer59's picture

Jiangxidad.....Could'nt agree with you more!  Most of these debt repudiation fans are bottom feeder losers living well beyond their means, and will have plenty of time on their hands to regret that fact.

There are two types of people.  One could recieve a $100,000 windfall, and end up in debt. The other could have $100,000 taken away from him, and would have it back in @ 5 years.  Unfortunately, the vast majority of modern Americans are just as lazy, greedy and corrupt as the banksters.

As you sow, you shall also reap. Nothing can change that immutable law of God and Nature.

gilligan's picture

I'm 20 years your junior and 100% back every word you said.  My car is 11 years old.  No flat screen yet (saving up for it - like wow, who would have thought). Paid my taxes for nearly 20 years.  Oh, and can't afford a house in my home city (in Australia) because of a decade of rabid property speculation that has pushed prices to insane levels (well, I could 'afford' it but I believe that going into that much debt would be too much of a risk in this inflated market).  We live within our means and I have no sympathy at all for those who chose not to.


Any rewarding of the foolish/stupid/greedy/ignorant and punishment of the responsible is morally reprehensible.  It takes two to tango.  Yep, the banksters and their partners in crime were amoral, but the borrowers were willing participants.  Accessories to the crime if you will.  It's like blaming your drug dealer for your addiction.  The dealer is scum of the earth, but you made a choice to do business with him.  Nobody held a gun to your head. 


Giuseppe Bagodonutti's picture

I doubt you'll be banned for your comment. From your standpoint, perhaps your argument is valid.

However, may I ask WHAT you paid for those 2 houses, and what your salary was at the time?

Or if you don't want to answer that, just tell me what the Ratio was...

Price of houses / yearly income...


JiangxiDad's picture

1988: 1st house NYC suburbs 25 years old ,paid 225K, 2 earners, no kids, income maybe 175k

1999: 2nd house (4 rental) NYC 65 years old (house inspector said tear-down but seemed ok to me)  income about 175000, but only one worker and 2 kids)

Sorry if coming off like a moralizing prick.  I guess everybody's pissed-off.

Giuseppe Bagodonutti's picture

Thanks for the honesty and detail...

Now in 1988, your Debt to Income level (just for the house) was 1.28...

The 2nd house doesn't matter so much, since you are using it as an investment (when you have renters, it is THEN an investment)

Part of the problem over the last few years, has been the use of housing by people to "get rich quick", and as such, the prices have become obscene relative to ACTUAL value.

And in this rush, those who are not aware of the cycles of speculative bubbles get caught thinking that "if they don't get in now, they'll never be able to get in" with the belief that prices will just continue to go up...

You would find now that people, who got caught, are in a situation where their Debt to Income ratios are 5+... in Vancouver, that level is 10+...

It has moved beyond what can be logically managed since it is NOT likely that people's incomes are going to DOUBLE in the next year... and when interest rates start ramping up , these people who are hanging on the edge with LOW interest rates, are going to get swallowed up in the next wave of foreclosure situations...

By allowing the situation to unfold thusly, it is going to create a greater potential calamity than what we have just gone through...

This is the reason for a debt jubilee (or the BIG RESET)... to bring valuations back to reasonable levels that can be sustained. In the end, it becomes better for an economy overall, since people who would be living on the edge of poverty (such as you claim to have done, but you are merely frugal, which I applaud you for), would then be able to engage in more functional consumer practices in benefit of the economy.

I don't think of it as lazy people, I think of it more as ignorance...

Perhaps this lesson will be there to remind everyone NOT to engage in such practices in the future? Or perhaps education in basic economics should be taught to more people?




gilligan's picture

This only makes sense in terms of why the bubble exists.


Giuseppe Bagodonutti said...
"Part of the problem over the last few years, has been the use of housing by people to "get rich quick", and as such, the prices have become obscene relative to ACTUAL value."


Essentially Giuseppe is saying that speculators drove prices up as a means of getting rich quick (true).  Prices have therefore become unrealistically high (true).  Therefore the speculators deserve a debt jubilee, along with all the other ignorant sheep who piled in (ahem...over my dead body).


Of course those with debt love this idea. Free money, woo hoo.  No responsibility or consequences for their actions.  Yeah!  Screw over those who were responsible and lived within their means.  Ha, you prudent suckers!


Any sort of debt jubilee is financial anarchy.  Moral hazard on steroids.  It is laughable that in the same post people are criticizing banksters while supporting debt jubilee.  Laughable because by putting out their hand to be saved from their bad decisions, they are no different to the banksters themselves.


Sounds harsh but it's what I believe.  It's not that complicated. 



Giuseppe Bagodonutti's picture

Perhaps you should look at the two possible outcomes, and tell me what is worse?

Either falling asset values are reflected in the debt owed, or you let the debts over-run the debtors' ability to pay...

Either way, you have financial anarchy. But in the case of the debt evaporation (not an actual jubilee, as the term is generally defined) the debtors would at least be paying a fair value for the assets, and would be able to use any extra income that would otherwise be paying a FANTASY DEBT (to the benefit of a creditor bank that creates money from thin air in the first place) for more beneficial consumption in the economic sense...

What you are implying is to let the debtors get over-run, then have money-laden vultures swoop in to collect the assets at foreclosure prices...

I think you might not realize that EVERYONE is a speculator, just with different tolerances for risk...

Tell me how people who lived within their means would be getting "screwed" by my proposal, if you could elucidate upon the matter... are you insinuating that they would somehow have to pay for the debt revaluation? If so, then HOW???

velobabe's picture

you make ¢s. thanks for bringing your smarts over to ZH, we can use them†

msjimmied's picture

The tea party folks are planning a march on Wall Street, shortly after that bit of news hit the wires, the unions said they will take their message there as well. About time they figured out where to take this fight to, the government can heal once we sever that link up..hmmm...this could get interesting. We face the same enemy. The diametrically opposed messages may just coalesce. Fusion is an awesome process.



dcb's picture

I correspond with martin wolf of th eft on a semi regular basis, and for the past few days have been thinking this "In other words, according to the most cynical view, the entire debt-money system is a scam ... and should be repudiated."

we say actions in Iceland, problems in Greece, they will be more problems in eastern Europe. so the banksters are quaking in their boots because what happens if too many people say screw it and refuse to pay. Mainly I see the actions of the elite doing all they can to preserve a corrupt system that benefits themselves at the expense of everyone else. That's how I view the IMF intervention in greece. we can't have too many Icelands now can we. It would show the emporer has no clothes.

Mainly I was going to write wold that his problem is hat he can't see how rotten to the core, corrupt, and wrong the entire system is (the ideology is just wrong). The central bankers function to ensure banking profits. no more. It's a joke. they are so entrenched in the system they can't see that it has failed and because it benefits them they refuse to adjust.

My fear is they will bring us all to ruin attempting to keep a flawed system in place until too late.


Whjat happens if people in mass decide not to pay taxes, credit card debt, mortgages, etc. It's the right thing to do, but illegal. Yet why must we be forced to support a criminal enterprise that bleeds us dry for the benefit of the "financial elite" of the world.


as one continues to think about the issues you realize it is one big fraud we have been trained to believe in since birth.

getting Bernanke and his ilk to chage their tune would be like the pople renouncing the church. Watching Greenspan testify gave me some thought on this. Is he really so stupid he can't see what he's done, is he acting to protect his friends in the system, is he afraid of his legacy and needs to defend it, is he just a crook? I don't know the answerr but seeing him I realized his how hard it will be to fix the system. Had he seen the light and maybe some of our elected officials would could do something. Instead they use "fear" as the weapon to ensure our future debt slavery.

sgt_doom's picture

You, dcb, are indeed heading in the right direction (the R. T. Naylor train-of-thinking).  Took me awhile to fully appreciate this as well, and also took years of studing the processes, and history, of securitization (going on for a number of centuries now, only varies in its concentrated forms).

And MAJOR PROPS and BRAVOS to GW for having a post citing Michael Hudson, Steve Keen, Catherine Austin Fitts and Matt Taibbi!!!!

Bravo, dude!!!

Kreditanstalt's picture

Sorry, can't entirely buy that line of reasoning.  This IS, deep down, still a very very thin line away from a dog-eat-dog world and everyone has to do their own DD, read the fine print and do their research. 

There never was any free money, there never can be any guarantee that all your investments - including mortgages - will pay off or that someone will be there to hold your hand.

The dirty truth, deep down, is that over-borrowing and idiotic borrowing are responsible for most of the mess.  Not only the enablers, the bankster, the governments, the central banks....

When push comes to shove, they didn't reckon with rate changes, job losses, inflation, deflation, falling house prices or negative amortization.

Tell me WHERE it is guaranteed that house prices can't FALL and then I'll feel sorry for mortgage-holders...

sgt_doom's picture

"..they didn't reckon with rate changes, job losses, inflation, deflation, falling house prices or negative amortization."

Bullcrap!  And mega bullcrap!!!!

Some knew, and many don't care as sociopathic personalities don't exhibit true time sense or regard for anyone else!

And THEY were responsible for those egineered jobs losses (leveraged buyouts, pump-and-dumps, offshoring jobs, etc., etc., ad nauseum).

Those who engineer those bubbles fully understand how they work, just as Alan Greenspan made the big bucks when he left the Fed (and joined the board of directors of the B.I.S.) and joined the John Paulson hedge fund betting ON the subprime meltdown!

The structured plan of leveraging upon leveraging upon leveraging, to allow for speculation upon speculation upon speculation, did require SOME planning, after all.....

Rick64's picture

The dirty truth, deep down, is that over-borrowing and idiotic borrowing are responsible for most of the mess.  Not only the enablers, the bankster, the governments, the central banks....

 Our government is guilty of that same irresponsible overborrowing in which the taxpayer is on the hook for. I agree that some of the home owners had no business taking out loans they couldn't afford, but our government has failed in regulating this industry despite repeated warnings.

There never was any free money, there never can be any guarantee that all your investments - including mortgages - will pay off or that someone will be there to hold your hand.

 Unless you are TBTF. With no accountability yet we want to hold the very same taxpayer that is paying for the TBTF mistakes liable for their mistakes. The Irony is too much.


Kreditanstalt's picture

Mortgage-holder deadbeats CHOSE to borrow this money, and AGREED to those terms.  To allow or encourage the middle classes to repudiate their debts would create a MONSTER moral hazard and would absolutely KILL credit availability in the U.S. in future, even for legitimate business use.


And what would all your fine plans do to your USD?

Lo-o-o-o-o-k out BELOW..............!

Madcow's picture

They "agreed" - yes. Those darn middle classes ... 

I'd be fine with that approach if the mortgages has come with the following:


WARNING:  Real estate prices have been forced higher and higher by decades long credit expansion. Suddenly, and without warning, the market may soon collapse and you could lose 80% of your investment overnight. You are basically the exit strategy for the guy you're buying from. As time goes on, the odds that you will find an exist strategy for yourself decline substantially.  The "American Dream" is a mirage and a scam. Caveat emptor.


If the great unwashed masses then chose to buy, then yes - let them eat cake.  What is disgusting about this is people were taught for DECADES to buy homes with debt from banks. We told them it was "good debt."  The mortgage bankers told them to "hurry before they're priced out." The chairman of the Federal Reserve said "AMT mortgages are a smart choice."  Tax laws encouraged people to load up on real estate. 


The problem with blaming the average home-buyer - who is now financially ruined and has no hope of recovering - is that to do so basically cements the notion that "you can't trust banks or governments." That's a really dangerous notion that is fundamentally at odds with democracy.  Think about what you're saying to average people out there - which is basically -" you're a fool and an idiot for trusting the system.  only an idiot does what government and business leaders tell them to do. you should have known that the US housing market was a giant ponzi scheme at the very end of its long and fraying rope."


I'm pissed too. but not at the poor bastards who got suckered in there at the end and are now left holding the bag.  

Privatus's picture

Fularious. When you think about it, defaulting against a debt in Ponzi dollars leaves you morally in the clear. Let's network the default meme anyway we can.

AnAnonymous's picture

Debt repudiation? For whom?

Lets tackle the case of countries deep in debts and heavy consumers as the others, those who are shallow in deep and light in consuming, that are more here to enable others' consumation (countries providing the basic resources to allow current organization of the world) will be kept in the game whatever happens, even when they try to get out.

Debt repudiation would be a very bad idea for the first category of countries.

The Earth is being consumed and these may not be the times of the final rush but this latter is getting closer.

What would be the consequence of a debt repudiation? Any country repudiating its debt will get on the side lines and watch others playing the game "who is consuming the Earth more than the others?"

Like a mall. You know that it is discount times. You know that there might be discount times later in the year but not that many. Is it the right time to turn yourself into a pariah? No. Never. The line of the game is to dive deeper in debt so you can benefit from discount days and only start to repay your debts when discount days can no longer be.

At this point, what is the issue with repaying your debts? People getting the money will be left with nothing cheap to buy and might even come to you to buy stuff at the lowest price as you buy them when they were the cheapest.

Pritchards is off his shoes once again. Jubilee was (is) acceptable when humanity was (is) taxing Earth lightly. Jubilee when a country has been guzzling one third of the oil reserves only to establish a military empire is absolutely ridiculous.

Some resources cant be renewed on human reasonable time scale and repaying debt is all about that: paying back in something that should stand for the destroyed resources.

Who is to believe that the US will be able to repay what they guzzled in oil? Only delusional people, me guess.

Rick64's picture

 I think this could grow into a huge movement. A cause that many people could endorse regardless of race, politics, or religion. There are a lot of distressed home owners and many of us sympathize with them. Another plus is we could take down the banking facade as most people don't like banks these days. This has really good potential .

Bear's picture

The US has been forgiving other sovereign debt for some time down ... We should default?

DaveyJones's picture

momentum grows for lots of things that begin with the letter "r"

Flatchestynerdette's picture

Its one thing for repudiation of debt to be done

by the individual - ie walking away from a house

(for whatever reasons), but 

its an entirely different animal to have a judge rule that

the mortgage was never valid in the first place and

so the owners of the house don't have to pay.

My question: will they still be allowed to live in it?

And my next question: do I still have time to buy the biggest house

on the block and then claim the bank made the mortgage with money out of thin air?


williambanzai7's picture

The only enforceable note is the execution copy. Think about it, if you could execute on a xerox copy, what would prevent 20 more purported note holders from claiming they are owed the same debt. This is a basic piece of paper management that fell through the subprime cracks.