This page has been archived and commenting is disabled.
Prepare to Be Forgiven, Ye Mortgage Sinners
Although we waxed skeptical here the other day about Warren Buffett’s just-announced $5 billion stake in Bank of America, we allowed for the possibility that the deal will provide a handsome payoff to him no matter what happens to the bank. B of A could implode, after all, a victim of sinking collateral values for its mortgage loans, and of litigation over its securitized-lending business. There is also the wild card of homeowners challenging lenders in court to show clear title to properties that are in line for foreclosure. In fact, this issue alone has the ability to capsize the global financial system, since “clear title” is exactly what ceased to exist when the feather merchants of the banking world leveraged out real estate to-the-max earlier in the decade to create an $800 trillion derivatives edifice – the Mother Lode of Digital Money, as it were. All of that sum must be viewed at the moment as deflationary overhang, by the way – not to mention, a key stumbling point for those who argue that The Great Economic Crisis must eventually precipitate out as hyperinflation.
So, how do you produce even mild inflation, let alone hyperinflation, with the housing market in a full-blown Depression? Most surely not by expanding the capacity of banks to make mortgage loans. That’s been tried to death – first moderately, then aggressively, and finally desperately — with zero success. Despite trillions of dollars worth of mortgage stimulus and supports both implied and real, the residential market looks even grimmer than it did a few years ago. Existing-home sales fell 3.5 percent in July despite the fact that prices were 4.4 percent lower than in July 2010. Now that’s deflation. There’s also the $6.6 trillion loss of home equity that has occurred since the onset of the housing bust five years ago. Will it ever return? We can’t imagine how, although it’s possible that Buffett and our President think they see a way. The two have been pretty tight lately, raising suspicions that they had hatched a rescue plan for housing before the Sage of Omaha sank a pile of dough into B of A preferred stock, a fat six-percent dividend, and warrants exercisable for $7.14 a share. (The stock ended the week at 7.75 after trading as high as $8.80).
Buffett must have gotten something from Obama. Why else would he have announced a $40,000-a-plate fund-raiser for the President before the ink had dried on the B of A deal? Pretty unseemly, really. As ‘C.C.’ noted in the Rick’s Picks forum, the “Robin Hood of the downtrodden” has cozied up to the second wealthiest man in America. So what might they have talked about? The “housing problem” for sure. It supposedly will be one of the President’s key talking points in the jobs speech he’s slated to give when his endless summer actually ends after Labor Day. We expect the speech to mark Obama’s outward transformation from elitist to populist. As such, we can expect to hear about a plan that will purport to save homeowners rather than mortgage lenders, allowing the former to refinance loans at low rates regardless of whether their homes are underwater. The President may even demagogue the bankers by admonishing them to get with the program in a big way. We are about to enter the Era of Mortgage Forgiveness, you see, and it can work only if lenders find it in their obsidian hearts to favor wastrels just this once over well-to-do shareholders and bondholders Banks and rentiers are about to take a hit, since they will be cajoled into trading old mortgage bonds for new ones that carry a lower coupon rate. Politicians will be in the line of fire too, since they might have to make some tough calls that would effectively favor deadbeats and spendthrifts over borrowers who acted responsibly.
Lying to Ourselves?
And make no mistake, that is going to be the most delicate part of any political maneuvering that purports to deal with the mortgage crisis. The New York Times would have you believe otherwise. “Many of today’s troubled borrowers were not reckless,” the Grey Lady editorialized recently. “Rather, they are a collateral damage in a bust that has wiped out equity and hammered jobs, turning what were reasonable debts into unbearable burdens.” We are lying to ourselves if we accept the narrative that the housing boom/bust was caused by factors other than a reckless and massive collusion between borrowers and lenders. We are all to blame, really, although it would appear that, politically speaking, the time has come for the bankers to shoulder their fair share of the housing bust.
»
- advertisements -
If NOONE can stay in a house rent free, then I want to, too.
Unfortunately politicians don't get elected for letting systems crash -- morality and discipline is great in principle but not if you are intending to get elected. Better to try something rather than fail for lack of trying. I see endless ranting and bitching against Obama in this forum but in truth no one could have done anything in this situation that would be principled -- it is an accumulation of 40 years of can kicking that got us here.
True, but sometimes it cant be helped. This is one of those times.
Again, it won't matter as all things paper continues to uncouple from all things physical. The only thing that will change is the rate of devolution.
Warren's inside man Barry secures his investment. And the American future taxpayer pays the bill to a multi-billionare. Crony Capitalism at it's disgusting finest.
i have a mortgage and don't want a free house. They better not give everyone free houses
I'm tired of people thinking they know what hyperinflation is and trying to explain why it won't happen. It doesn't matter how deflated the balloon is if I'm holding a pin.
I am Chumbawamba.
fuck that... give me a free house.
lets see..
A. i can pay off my 400K home over the next 29 years (1 year in)
or
B. I can pay it off in a year with Hyperinflation
I will take B.(we will get hyperinflation in the end anyhow, so bring it on)
If you can pay for yours, you'll pay for theirs too. Being an evil speculator I soldmine in 2006. I will be punished.
This will be the new stimulus. As well the hands will be evident in other areas to create the illusion of recovery. More dollar creation with suppression of those markets that signal dollar weakness. Your government is the market. Don't worry, they stand ready to protect you.
Theyve found a new way to spin garbage into 24K gold! Well...Im not holding me breath.
Shit man, you’re leaking my plan. I’ve got no mortgage on my house now. So, when the gov’t starts subsidizing housing with 2% 30 year fixed for anyone with a checking account, I’m going to leverage my house to the max, buy physical gold with the proceeds, and bury it somewhere safe. Then, after the housing market tanks again, I’ll default on my mortgage and go vacation until I can buy my house back at a Sheriff’s sale for 10 cents on the dollar.
Sing it for me Diana, “It’s My Turn”.