There is Only One Way Out of the Foreclosure Crisis

George Washington's picture

We're the fish.

The giant "too big to fail" banks are the bird. They've got their talons in the American consumer and the economy.

only way out for us - the fish - is if someone "shoots" the bird ... or
at least captures it and removes its talons from our hide.

In other words: Unless the mega-banks are broken up and reined in, we're in quite a pickle.

As I've previously noted, virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won't be able to recover, and that smaller banks actually lend more into the economy than the mega-banks (and see this).

Unless we break up the mega-banks:

  • The big banks will continue to dominate American politics, destroying any chance of restoring a representative form of government

And now there's the foreclosure crisis.

You've probably heard about it. Even Jon Stewart is talking about it.

We're in tough spot, alright.

As Yves Smith notes:

problems facing deals where the notes were not properly conveyed
(which we think are pervasive) are not easily remedied. As we have
discussed, the “fixes” for the note conflict both with the provisions
of the pooling and servicing agreement and New York Trust law.

Breaking up the giant banks is the only way out.

As Congressman Grayson wrote to Geithner, Bernanke, the SEC, FDIC, and the rest of the financial overseers:

liability here for the major banks is potentially enormous, and can
lead to a systemic risk. Fortunately, the Dodd-Frank financial reform
legislation includes a resolution process for these banks.

Dodd-Frank legislation is the recently-passed "financial reform
legislation" that lets regulators force insolvent banks - no matter how
big - into bankruptcy.

Banking analyst Chris Whalen wrote on Thursday:

U.S. banking industry is entering a new period of crisis where
operating costs are rising dramatically due to foreclosures and
defaults. We are less than ¼ of the way through the foreclosure


The largest U.S. banks remain insolvent and must continue to shrink. Failure
by the Obama Administration to restructure the largest banks during
2007?2009 period only means that this process is going to occur over
next three to five years
–whether we like it or not.

The issue is recognizing existing losses ?? not if a loss occurred.
Impending operational collapse of some of the largest U.S. banks will
serve as the catalyst for re?creation of RFC?type liquidation
to handle the operational task of finally deflating the subprime bubble.

also said that the next three to six months is when things are going
to get out of control, and agrees that Dodd-Frank legislation - the
"financial reform legislation" that lets regulators force insolvent
international banks into bankruptcy - may be used to restructure

Similarly, Janet Tavakoli says:

This is the biggest fraud in the history of the capital markets.


we had the financial crisis, the first thing the banks did was run to
Congress and ask for accounting relief. They asked to be able to avoid
pricing this stuff at the price where people would buy them. So no one
can tell you the size of the hole in these balance sheets. We’ve thrown
a lot of money at it. TARP was just the tip of the iceberg. We’ve
given them guarantees on debts, low-cost funding from the Fed. But a
lot of these mortgages just cannot be saved. Had we acknowledged this
problem in 2005, we could’ve cleaned it up for a few hundred billion
dollars. But we didn’t. Banks were lying and committing fraud, and our
regulators were covering them and so a bad problem has become a
hellacious one.


In order to make the financial system
healthy, we need to recognize the extent of our losses and begin facing
the fraud. Then the market will be trustworthy again and people will
start to participate.


This can be done with a resolution trust corporation, the way we cleaned up the S&Ls.

And Ellen Brown points out:

Karl Denninger ... writes:

who bought MBS from institutions that improperly securitized this
paper can and should sue the securitizers to well beyond the orbit of
Mars... [I]f this bankrupts one or more large banking institutions, so
be it. We now have "resolution authority," let's see it used.

The resolution authority Denninger is referring to is in the new Banking Reform Bill,
which gives federal regulators the power and responsibility to break
up big banks when they pose a "grave risk" to the financial system -
which is what we have here.




Financial analyst Marshall Auerback ... writes:

major banks are insolvent and cannot (and should not) be saved. The
best approach is something like a banking holiday for the largest 19
banks and shadow banks in which institutions are closed for a
relatively brief period. Supervisors move in to assess problems. It is
essential that all big banks be examined during the "holiday" to uncover
claims on one another. It is highly likely that supervisors will find
that several trillions of dollars of bad assets will turn out to be
claims big financial institutions have on one another (that is exactly
what was found when AIG was examined--which is why the government
bail-out of AIG led to side payments to the big banks and shadow
banks)... By taking over and resolving the biggest 19 banks and netting
claims, the collateral damage in the form of losses for other banks and
shadow banks will be relatively small.

What we need to
avoid at all costs is "TARP II" - another bank bailout by the
taxpayers. No bank is too big to fail. The giant banks can be broken
up and replaced with a network of publicly-owned banks and community
banks, which could do a substantially better job of serving consumers
and businesses than Wall Street is doing now.

Either the giant banks' talons are removed from us, or the economy is not going to make it.

For details on the foreclosure crisis, see this, this, this and this.

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kevinearick's picture

it's a slow motion train wreck because the public is just learning to increase taps in the filter and improve its contextual "sight" in a self-reinfocing feedback cycle.

The relativity circuit is slow, with lots of small disordly events building, but they have not reached the threshold required to catalyze the big picture in linear time.

What would happen to all the people clinging to that bridge, which has aleady been separated from its abutments if 40+ million fully functional taps were activated instantaneously?

MarketFox's picture


This truly good bottom line....point A to point B thinking....I like it a lot....


So let's succinctly review where we really were....are...and where we are really going....

2006/7 100 = total credit and assets

2010 = 60

2012 = 40


Proposed and utilized govt. solutions:

Money counterfeiting

Accounting Fraud

Tax increases on capital


100 - not going to go away until there is debt destruction....and lots of label changing on assets.....which is what you have mentioned...


Recovery can occur once 40 is acknowleged...and then the 40 can move higher....


And this time around....coming from better overall structure....

regarding both the banking and securities markets....


The current administration to date....are doing just the opposite of what they really need to be doing....


Add to the structure change

Eliminate individual/corporate income taxes....

Recreate the securities exchange for RETAIL....for the new internet age of efficiency and information...thus allowing banks to service RETAIL...and not game them....


Entrepreneurship has to get big....and govt. has to get small....

In order to compete with BRIC.....

This means a lower dollar....

This means dramatically reducing the size of government...

This means permanent tax structure be replaced by the broadest smallest tax a small monthly basis point charge on all cash balances...

And govt. cannot exceed 10% of the economy by law....


And another item of significant THIS....

To end FASCISM in the US....the big banks HAVE to be broken up and placed in history as one of the biggest US mistakes never to be repeated again.....

blindman's picture

you lost me with the tax on savings.

i don't think my mind will ever be big enough

to wrap itself around that one?

MarketFox's picture

Money is money....and the broadest possible making tax as small as possible....would be a small basis point charge on cash 10 basis points per month....

When you pay convert something to money....

This has to be coupled with a small government mandate....


And this is not just savings....this is any cash balance....

ie loaned money....



Another possibility would be some form of a consumption tax....however this would be less well distributed....


MurderNeverWasLove's picture

You know I like your thinking about taxes.

First repeal them all, then come back with a tiny fee, but I wouldn't put it on savings, I'd put it on use.  Every time you want to play with money, the casino gets its rake.

The biggest players shovel quadrillions around every year amongst themselves, yet only register a tiny fraction of that commerce as anything taxable.

If casinos only collected a rake on cashed-out winnings, they'd be out of business.

Pay to play.  Anonymous.  Capital gains tax cut of 95+%.  Same with property taxes if the states go along.

Good excuse to repeal the 16th amendment, and go with something like you suggest, limiting government to a small percentage of GDP.

Why not even take the money creation power away from the banks?  Pretty sure they've had their chance to prove how badly they can F things up.

They aren't really lending anymore, anyway, so now is as good a time as any for 100% reserve requirements.  And if corporations really are like regular people with regards to speech, etc., then just as well go all the way, 100% reserve requirements, 20% down, taxed like everyone else, and a freaking life span, eh?

blindman's picture

the "government" / people could operate, flush, with no tax at all.

i know, it sounds crazy,  but it is just sanity in an insane world.


Guest Post: Money, Myth, and Machiavelli October 9th, 2010 by Damon Vrabel

 and it is not "socialism" it is republicanism as was conceived in

1787 or so.  not federalism.  not communism etc... and has nothing

to do with the republican party or democratic party as empowered, by

the banksters, today. 

why do the banks have power, the power of the people, in their hands?

simply because they stole it.  and tax you through the "government",

not the people, to rub it in and prove it.!

watch the vid?

stuartbramhall's picture

After a close encounter with the first Resolution Trust Corporation (which ripped me off for about $300,000), I would be very opposed to creating another one. At the time, people were extremely about the head of the RTC – a once and future Goldman Sachs executive – selling Goldman Sachs a lot of deeply discounted real estate (non-competitively) – at the cost of billions of dollars to the taxpayer. And they simply ran over little people like me like a herd of elephants. In 1992 I bought a commercial building in a foreclosure sale (the bank I bought it from held the note). Then a month later they went bankrupt, and the RTC took them over and refused to honor the sales contract which required them to evict the hostile tenants. I got both my senators and my congressman involved – and filed a complaint. The RTC agreed to a settlement, then renigged on it, and told me if I wasn’t happy I should get a lawyer and sue them (and pay legal costs equal to my original investment). I write about this, as well as close encounter with other federal crooks who worked for US intelligence, in my recent memoir THE MOST REVOLUTIONARY ACT: MEMOIR OF AN AMERICAN REFUGEE ( I currently live “in exile” in New Zealand.

anolmec's picture

"Shoot the bird and remove its Talons from our hide", but then you suggest its the bankers Talons. I am not so sure. Lets see who passed laws that allowd these banks to get TBTF??ummm that would be politicians........and who passed laws that allowed mortgages to be securitized.....again politicians.....and who pray tell has sat on their asses wile there constituents are being foreclosed on by the holders of nothing....politicians......I agree with the shooting part, but disagree with which way the lead should fly.







Troy Ounce's picture

What about:

  1. abolish the fed
  2. introduce a gold and/or silver based monetary standard
  3. go after the corrupted

Chances: 0.000001%

Jim in MN's picture

Mr. Washington, there are other ways out.  Even if the TBTF brethren are broken up, the loans are still bad, the assets impaired. 

What if we let markets work and just required mark to market and took the bond haircuts?  Any attempt to shift these bad debts away from the private holders is a certain Japanification policy; indeed, that is our contemporary policy.  However many lost decades it takes.

Here is a new, fresh, glowing idea for you: Progressive (income-graduated) Haircuts.  I made this up a couple years back when the crisis hit, and have stuck it up on Krugman's blog, Naked Capitalism, and here several times.  It is quite elegant.  You do the mainline cure, mark all the shit to market, take the hit.  But, you allow lower and middle income Americans a tax credit to partially, or what the hell, totally compensate. 

Is simple, no?  The system gets purged, we get on with things without the horrific damage to our economy, polity and lives that is the inevitable outcome of the current imbicility and corruption we are facing.

Progressive Haircuts.  Please, somebody at least try to get the Big Policy Call ("no bond haircuts please, we'd rather end it all") back on the table.  It will be the death of our nation. 

Bringin It's picture

What, not multiple posts?  Easy on the save button there tiger.

Jim in MN's picture

My fuckups in no way dim my patriotism. 


Bringin It's picture

++ for patriotism Jim.  I appreciate your posts.

Bob's picture

Oh, no, it's YOU! 

Jim, I have never laughed so hard or so long "in" a web forum before.  You really inspired people with that postpostpostpostpost . . . 

Can't exactly explain it, but that was funny!  Like one of those dreams where you're naked in class . . . but, thank god it ain't you!

Oh, yeah, this post.  Interesting concept.  Deflation seems to be the problem.  I would be fine with that.  But, unfortunately, the financiers have a real problem with it. 

Systemically, it makes sense, provided we outlawed the derivatives that would be triggered.  Of course, there are all the state and muni bk's coming.  And the apparently unpayable federal debt. 

Seems to me we are royally screwed, no matter what. At least in this country.  My realistic hope is that we don't trigger another Dark Age or suffer culling by TPTB. 

Bringin It's picture

Look George - just End the Fed, go back to MTM and we're done.  Yes banks will fold ... and they should.

surfsup's picture

I think quite the opposite is true in regard to the pic above.  Eventually criminal acts beget the talons of quantitative Law.  Time is the only distilling agent.   All wrong action falls on its own sword -- every time -- in time.  Manipulation is not power and it can't stand the Light of Truth being thrown on it.  Nothing fails like success...  The fish is the fraud, the Bird is the Law.   She's always hungry...

enobittep's picture

Banks broken up - yes.

Outlaw fractional reserve banking (no more Mandrake magic) - yes

Repeal of the Federal Reserve Act - yes

Gold backed currency - yes

Ability to run a trade surplus or deficit outlawed - yes

Torture and kill fuckers that did this shit - yes

Kina's picture

The only way out for us - the fish - is if someone "shoots" the bird ..

I think it is becoming clearer where all this is going to end up. The US ending up as a steaming pile of crap circled by flies (banksters).

When this economy falls apart entirely as it inevitably will the issues will no longer be economic, they will be about justice and vengence. People will demand blood sacrifices for systemic collapse of the country, they will want a focus for all their rage.

And one thing we know about the modern American politician is if it is their skin on the line thye will sell their mothers into a brothel. So when the public turn their rage on them they will deflect it onto their current paymasters. The employee will sell out their current bosses and deflect all community rage and desire for vengence on the banks.

The scum in the Senate and so forth who currently do all they can to help banks fuck over America, will turn on them and make them the source of all evil, and the resting place of all anger and revenge.

People will want blood and will get it, given to them by the same craven politicians who are currently working against them.


So those banksters and corrupt regulators out their ought to be feeling a bit of a shiver, people are dancing on their graves, there will be no safe place for them in the US or Europe.




non-anon's picture

these final days are like the dying gasps of a dying beast, already dead

ptolemy_newit's picture

American pussy's are fucking talking heads with 300 million hand guns and not a single patriot left.


Its not clear enough, you know who the terrorist threats are from within!

gwar5's picture

The banks own us, and the health care system is how they will repossess what is left when they make us take the blue pill. 

Serious. You will not be allowed to spend down your own money to try to live, or the doctor will face criminal charges, and the FED can now directly track every digital transaction you do and can debit your accounts (before they even debit you!).




Milestones's picture

On 6-15-10 I posted a rather lenghty document contending that because neither Congress nor the President had the authority to delegate the authority to the Federal Reserve that was given; under Marbury v Madison (1803) any law contrary to the Constitution is not only illegal; the act is VOID. If anyone is interested in reading it I guess it is posted under my handle and was #415414.    Milestones

gwar5's picture

Better idea: burn them down for the insurance money.

MurderNeverWasLove's picture

Hey, you might get a lot of birds with that stone!

nicholforest's picture

There might be a moment there when the fish thinks - WOW this flying is cool!

But just a moment.

The big banks are the psycopathic servants of the Predators who now target the middle class in a move towards economic feudalism.

See my earlier post here:

MurderNeverWasLove's picture

Lost me here:

Accelerating technologies and an unsustainable increase in population growth are matched by an alarming decrease in natural resources, rising pollution and dramatic climate change. This is the backdrop as we stand on the edge of an abyss, a massive power struggle sweeping across our world.

This is all Predator BS.  Don't believe the hype, and especially, don't help them pimp their Malthusian pap.

Shell Game's picture

'Since this won't be solved on the soap box, nor the jury box, nor at the ballot box, it is time to solve this with the ammo box.'

Buying PMs is not only wealth preservation, it's an act of civil disobedience against the TBTFs.  Hide that gold, bitchez!

gwar5's picture

I think every American that is able ought to buy at least one ounce of gold per month until they cry, which will just make gold go up even more.

Shell Game's picture

Absolutely. Real money is the only way to fight this paper hell.

Buck Johnson's picture

Chris Whalen wouldn't have said what he said if he didn't have inside information about many of these banks.  I think he is correct and this push for legislation is being done to give the president more power to unwind these banks via other methods. 

Mercury's picture

Man, that is an osprey (aka a fish hawk) and it looks like he just got dinner out of some McMansion backyard koi pond.

But, yeah, I'm generally in favor of more, smaller banks as opposed to fewer, larger banks.

What the hell ever happened to regional deposit share limits anyway.  That outlasted Glass-Steagall didn't it?

swamp's picture

End the Fed, the private unlawful unFederal unReserve.

Bringin It's picture

Until the Fed goes, there is no solution.

Mitchman's picture

Thank you, GW.  While many on ZH are focused on the delinquent homeowners who are apparently getting off "scott free" in the mortgage foreclosure mess, the real crux of the matter is that it appears that the banks that sponsored the mortgage securitizations engaged in outright fraud, often "selling" into securitization vehicles loans that they did not own.

You can bet that investors that have been burned in this particular scheme are going to be suing these banks so regardless of whether a foreclosure becomes enforceable, the basic securitizations themselves will come into question.  This is the real risk to the banks.

I hope this bankrupts each and every one of them as to hope for legislative action to break them up is way too much to hope for.

thanks again for a great post.

gillimus's picture

You can bet that investors that have been burned in this particular scheme are going to be suing these banks so regardless of whether a foreclosure becomes enforceable, the basic securitizations themselves will come into question. 


That's the key, Mitchman.  If you or I are injured by fraud or deceit it doesn't matter much, but when Jaime Dimon is buttfucked by his Golbal Superpals there will be hell to pay.

Azannoth's picture

If you repealed the FED would you at the same time be repealing all the debt the FED has ? hmmmm sounds lika a plan

Ieetseelmeet's picture

The quick and expedient answer is


Eminent Domain


America is a land of communities and they must find that strength again.

Let the local community government take this action.

The compensation to the homeowner is forgiveness of the value of the back taxes.

The previous owner has a clear credit rating. Not his fault the town took the property.

Having done this, the house is taken off the foreclosure playing field and out of the CDO tranche.

The house is then sold at the current fair market value by the municipality with no problems with title insurance.

The mortgage is taken by the local small town bank.

All this is done at the community level.


Eminent Domain

The fish is snatched by a flock of local starlings.


RockyRacoon's picture

Wonderful thought, but let the federal crooks cede authority?  Let local financial institutions show the big banks how the job is done?  Not likely.  I do like your panoramic view, however.

Djirk's picture

Who is the biggest bank? The FED and their charter seems to be "make" money.

The only way out is to start a liquidation process like they had in the S&L crisis.

But it will be politically easier to inflate away the debts, the social security and medicaid liabilities.

How about creating a supply shock if you want to keep your hands clean?


Bob's picture

I always wonder just how much keeping the Fed has actually cost us--over its lifetime.  Hell, even over just the past year.  Something tells me that all of the "entitlement" programs that taxpayers have paid for over the last 75 years--and are now being told cannot be afforded--would be a drop in the bucket compared to what the leeches at the Fed have cost the nation. 

Bringin It's picture

Re. Leeches at the Fed - You're 100% right Bob.  Funny you got junked.  Fed trolls are everywhere.

Bob's picture

Hard to say--there are a whole lotta folks who just deeply despise so-called "entitlements."  And then there's the "who have you offended" factor to consider. 

Fortunately, I don't do ZH for love or money. 

tony bonn's picture

"In other words: Unless the mega-banks are broken up and reined in, we're in quite a pickle."

absolutely correct....they must be destroyed and the evil squids running them thrown into jail and shot.

Mad Mad Woman's picture

Don't throw them into jail, just shoot them. That will save US a lot of money.

RecoveringDebtJunkie's picture

I like the drug dealer (banks) - addict (us) analogy better. We're not helpless little fish, no matter how much easier that is to believe. We need to voluntarily withdraw support from these destructive institutions, because our government is not going to do it for us... in fact they have become one of the most destructive.

Our local and state governments, on the other hand, may still be at operating at a level at which they could do something useful for their people. Unlikely, but possible.