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Momentum Grows for Debt Repudiation
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:
- The New York Times (and New York Times Magazine)
- Many others
In addition, as I pointed out in February:
There
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:
As
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.
Thus
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
out?
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
underway.
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:
Look
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.
Will
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
Reconstruction.
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.
[We’re
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...
The
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":
[The
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).
Justice
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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True, but debt is also an abstraction, as credit and debt are essentially the same thing (credit allowed or lent is debt).
It is the interest on that debt which has gotten out of hand. Only a return to public banking, which was the norm at the beginning of the United States of America, will suffice.
And putting the criminals (debt-financed billioniaires) in jail, of course!
If there weren't a total lack of humanity - psychopathic criminal behavior of biblical proportions - then perhaps as others suggest the finance thingy would be clear. Math? Finance? No. Just malice.
I'm really glad to hear seriously credible voices being heard. Catherine Austin Fitts is the ultimate insider and seemingly some who really gives a phuck about this country. And I think she sees that if cooler heads don't start to prevail then the final option left for Middle America will be anything but peaceful.
This is not Europe. This is not Russia. That is lost on some who think that Americans will just bow their heads and walk into the economic gas chamber. This whole notion that just because over 50% of the nation doesn't pay tax makes it impossible for the rest of us to change this pre-determined fate is a gross under estimation.
You must measure the determination of each person in those percentages. It is one thing to vote for benefits and clearly another to fight for freedom and liberty.
look at the demographics.. lets be real and not fake PC here.. there a lot of new folks that will be glad to be part of a welfare state.. they are happy to come in and work for pennies on the dollar so why would they object to fiscal slavery??
this country is for the imperialists - i do not know, but i would be surprised if the rich schools were teaching anything except how to manage workers/money/etc to their kids
that would explain the mentality at the top since that is all they know and must protect
"an article from an Australian economist who seemed to be well respected, who claimed that the only way out of this was a world-wide jubelee"
Sounds like Steve Keen. I searched ZH and wasn't able to find the article you mentioned, but Edward Harrison has a related clip:
http://www.creditwritedowns.com/2009/09/steve-keen-on-the-edge-with-max-...
I think it was Keen, I remember seeing a posted video and I think he had a seperate interview with Max Keiser.
I think a humanities background would make you perhaps more capable of explaining what is going on than a math or economics background would since everything we see taking place in the markets are a complete defiance of the laws of math and economics...so perhaps only art can explain what math fails to understand...because what we are dealing with...is fiction.
"While free markets tend to democratize a society, unfettered capitalism leads invariably to corporate control of government."
Robert Kennedy. Jr.
"The twentieth century has been characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy."
Alex Carey
"We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."
Louis Brandeis, Supreme Court Justice
"Bad ideas flourish because they are in the interest of powerful groups."
Paul Krugman
"And so it goes"
Linda Ellerbe
I beg to differ with you. Excellent copy and paste but what
were you saying. Ah quote( everything we see taking place in the markets are a complete defiance of the laws of math and economics).Its pretty easy math, spend more than than you make
and borrower the rest every month= bankrupt.
Way to use Krugman's quote against him!
Mmmmm, that's tasty irony!
Yup, you have it more or less correctly. We will never be able to pay off the debt with today's dollars. In fact, they never intended to pay if off.
finally some good news on this site! Time for the bankers to take it in the ass for once.
http://wallstreetblips.dailyradar.com/video/bird_and_fortune_subprime_crisis/
The term to use in polite company is "in u end o" and I have it from a good source that they like it "in u end o".
So let's settle for in their pocket book or wallet, as the case may be. :>)
It's not a matter of if there will be a repudiation but when and how. Sine the sovereign debts are unpayable they won't be payed, not legitimately. Now for the citizens there will be no mercy, hey cannot pay so their assets will be taken. The banks will move in to seize the collateral behind the assets. If they're smart they'll do it before the sovereign default while they still have the threat above the sovereign nations to back up the banks asset seizing.
"...they believed that the government in Buenos Aires was avoiding the hard truth that it could not service its debts, for fear that making such an admission would cause an economic perturbation that might induce a change of political leadership. Furthermore, delaying this recognition would mean that the Argentine people would suffer more in the long run." from Paul Blustein's "And the Money Kept Rolling In (and Out)"
The US is not Argentina, but there are more similarities than I would like to see, and the number is growing.
True: It is a Universal Truth (e.g., "Law") that, "All debt that cannot be repaid, will default." These debts cannot be repaid, and when the cash-flow issue is triggered (i.e., the debt cannot be serviced), the process of default will determine who gets the asset.
Banks should grab what they can before sovereign default, because after, there are no rules and no law.
Remember that for most communities in the US, the local Sheriff (typically an elected position) performs the physical removal of the resident from the home during foreclosure. We've already had instances in 2009 in some areas (like Nevada and California) where the Sheriff has refused to evict residents when presented with the ownership transfer paperwork from the bank (the new owner through REO seizure) -- literally, the Sheriff refuses to enforce the law.
Similar issues abouded in the 1930's -- in the beginning, families were evicted. Later, after the communities "had enough", men with shotguns would turn the bankers away from local homes (the banks could not evict, and could not take posession).
After sovereign default, the bankers have little chance of claiming occupied residences. However, they would still probably be able to seize quite a lot of commercial, public, or "common" property, as suggested through the "tragedy of the commons". Still, if there is no law, it's unclear what they could do with it, until things "calmed down". They would probably be patient, though, because nobody else would do anything with those properties either.
Well there is a chance there will still be law, martial law. I have no doubt that when there is a currency breakdown we will see troops on the street to encourage the masses to stay inside their bank owned homes.
Now for homes who cares? I would rather own the drilling and mining rights, and own the good farmland. There is a lot of resources in America but they cannot be gotten to for a myriad of reasons. I would much rather swing a deal that I would be allowed to extract resources and ignore all environmental law...and import my own 3rd world slave labor. Or use the locals as slave labor, that part is interchangeable.
After all when you control the necessities of life, in a world of increasing need in the face of dwindling supply, that is a place to make a lot of money.
Now that was Shameful...
yep - this all goes to shit so a schlep like you can step in and run an old world plantation.. please lead the way - we are all so less worthy
you probably can't even run a garden
Who says I'll own anything? I'm just some average guy, I don't own dick.
What I was speaking about above is what I would do if I was in there position and was as soulless as they clearly are. Do you think a Paulson or Fuld or Dimon would have a problem using state power to seize resources and run it like an old world slave camp? I was trying to think as them or should I say that explicit?
"Let them eat shit"
"let them eat shit"
+10000000
Pretty soon we will see ads on how YOU can turn your FICO score into MILLIONs.
My outhouse was filled, my double-wide was broken, I worked three jobs and after paying my loans I had nothin' and I mean nothin'. Me and My Dog Boomer would go out at night and trash dumpsters. Then, one day I found 29.99 by sheer luck and sent away for this course I had read about in Hustler magazine from one of the dumpsters. First I got my FICO and for some reason I was still at 790. So I applied for everything I could. Then I took cash advances on all of it. If they were store cards, I bought a shit load of iPads and sold them on eBay for cash and started shorting bank stocks just like the book, Let them Eat Shit said. When they'd call me for money, I put in the optional DVD ($14.95) or ran them through my Phlink that would transfer them to either the Fed or their own line. I tried to cut a deal with sucksthebigone.com but they weren't cool.
Then word spread and bank stocks started going down. I juiced up my shorts with massive amounts of naked puts. I even called for credit line increases. Then one day this little symbol the book told me to load up on named FAZ shot up to $2000 when Bank of America went dark at mid-day and I had a 10000 calls on it. I'm rich man. I still won't pay those fuckers though. HAHAHA. I put it all in a offshore SPE just like the course taught me.
Now they can go dumpster diving just like me and Boomer did .
If you don't understand any of this don't worry, you'll understand a shit pile full of money so you too can say "Let them eat shit" and die motherfuckers.
Dave Gridrich and Boomer - formerly of Darien, Ga
Rich motherfuckers now in a undisclosed location.
I'll pitch in $20 if someone puts together an infomercial. I think everyone needs to know how to legally not pay their mortgage.
d, burn
My Dog Boomer would go out at night and trash dumpsters
beg you parden lol
+100
now thats funny right there, dont care who ya are. throw out that thar name of the course boomer sent off fer?
and die.
HA! My new favorite quote.
Hyper-inflation: game-over for the Fed
Debt repudiation: bonanza for lawyers and accountants
*
Now that they're starting to turn on each other, we'll see who really has the power. If the governments win, we'll have hyper-inflation and the banks can get fukt. If the bankers win, we'll have massive sovereign defaults and the bond-holders can get $uck it. My money is on the Governments. Their plan to geometrically expand the money supply to induce a global hyper-inflationary depression is simpler, and more elegant. And - it gets the job done in half the time.You really mean that they're not on the same side?