US Households Are Not "Deleveraging" - They Are Simply Defaulting In Bulk

Tyler Durden's picture


Lately there has been an amusing and very spurious, not to mention wrong, argument among both the "serious media" and the various tabloids, that US households have delevered to the tune of $1 trillion, primarily as a result of mortgage debt reductions (not to be confused with total consumer debt which month after month hits new record highs, primarily due to soaring student and GM auto loans). The implication here is that unlike in year past, US households are finally doing the responsible thing and are actively deleveraging of their own free will. This couldn't be further from the truth, and to put baseless rumors of this nature to rest once and for all, below we have compiled a simple chart using the NY Fed's own data, showing the total change in mortgage debt, and what portion of it is due to discharges (aka defaults) of 1st and 2nd lien debt. In a nutshell: based on NYFed calculations, there has been $800 billion in mortgage debt deleveraging since the end of 2007. This has been due to $1.2 trillion in discharges (the amount is greater than the total first lien mortgages, due to the increasing use of HELOCs and 2nd lien mortgages before the housing bubble popped).

In other words, instead of actual responsible behavior of paying down debt, the primary if not only reason there has been any "deleveraging" at all at the US household level, is because of excess debt which became insurmountable, not because it was being paid down, the result of which is that more and more Americans are simply handing their keys in to the bank and walking away, and also explains why the US banking system is now practicing Foreclosure Stuffing, as defined first here, as the banks know too well, if all the housing inventory which is currently in the default pipeline were unleashed, it would rip off any floor below the US housing "recovery" which is not a recovery at all, but merely a subsidized bounce, as millions of units are held on the banks' books in hopes that what limited inventory there is gets bid up so high the second housing bubble can be inflated before the first one has even fully burst.

Naturally, two concurrent housing bubbles can not happen, Bernanke's fondest wishes to the contrary notwithstanding, especially since as shown above, US households do not delever unless they actually file for bankruptcy, and in the process destroy their credit rating for years, making them ineligible for future debt for at least five years. It is thus safe to say that all the other increasingly poorer US households (who are not getting paid more as we showed this morning with the chart showing Y/Y change in US household earnings) are merely adding on more and more debt in hopes of going out in a bankrupt blaze of glory just like everyone else: from their neighbors, to all "developed world" governments.

And why not: after all this behavior is being endorsed by the Fed with both hands and feet.

Source: NY Fed

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Mon, 10/15/2012 - 18:00 | 2892290 EscapeKey
EscapeKey's picture

I am Barack Obama and I approve this message.

Mon, 10/15/2012 - 18:07 | 2892310 Muppet of the U...
Muppet of the Universe's picture

You know at first I would curse the banks for their evil lending practices... But you know, I can only understand their position.  The muppets are fully to blame for such a situation.  Morons who did not prepare or think twice.  They simply live with their heads up their asses and hands in the next guy's pocket- I can only agree with controlling or killing the muppets.  They are useless morons who literally strive for nothing and expect everything.

Let the Muppets vote for their puppet presidents, and everyone with half a brain will leave the US.

Mon, 10/15/2012 - 18:28 | 2892362 11b40
11b40's picture

First, let's kill all the Muppets.

How about we start with "Muppet of the Universe"?

Mon, 10/15/2012 - 18:33 | 2892371 NotApplicable
NotApplicable's picture

So... do those defaults show up in the MBS world, or has Benron papered over them in an effort to keep the debt from being extinguished?

Mon, 10/15/2012 - 19:04 | 2892442 TruthInSunshine
TruthInSunshine's picture

In the interim, the banks & financial best friends forever of the New York Branch of the Federal Reserve are deleveraging by selling their most toxic, septic assets to the Federal Reserve for mark-to-unicorn (MAU) prices...

...such a sweet deal for bankster CronyKomradeCapitalists.


The Bernank is the great socializer of losses and toxic assets the U.S. has ever known!

Mon, 10/15/2012 - 19:10 | 2892454 walküre
walküre's picture

so much for the MYTH that Americans are paying DOWN debt in record numbers...

Mon, 10/15/2012 - 19:53 | 2892526 Bicycle Repairman
Bicycle Repairman's picture

Yes.  The reality is you are paying dowm for them.

Mon, 12/31/2012 - 19:42 | 3110995 Muppet Pimp
Muppet Pimp's picture

And this phenomenon shall be known as the Donald Trump business model.

Mon, 10/15/2012 - 20:07 | 2892559 kaiserhoff
kaiserhoff's picture

Great analysis.  Shows the complete futility of everything done in the last three years.  20 more and we'll be in the same shape as Japan.

Mon, 10/15/2012 - 21:00 | 2892673 FEDbuster
FEDbuster's picture

Wrong, in a couple of years we will be like Greece and Spain, with some guns, looting and burning added to the mix.

Mon, 10/15/2012 - 21:33 | 2892779 newworldorder
newworldorder's picture

No- you won't. Japan is an old society with at least 2 millenea of history. We are a multi-racial country of 300+ million that may break apart along racial lines.

Mon, 10/15/2012 - 22:02 | 2892792 TruthInSunshine
TruthInSunshine's picture

OT -


If at first you don't succeed in destroying the U.S. (and global) economy with a heavy dose of fractional reserve monetary retardeness, bring in the thermof*ckingnuclear warheads, bitchez:


10-15 20:39: Fed's Williams says Fed might expand purchases to other assets


And China waves the big middle finger at the Bernank (per Hilsenrath's Bernanke scripted leak/WSJ article).

10-15 21:45: CNY will not enter a new round of strengthening, according to Chinese Press




Mon, 10/15/2012 - 21:41 | 2892803 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"Japan is an old society with at least 2 millenea of history."

In the "old days" the Japanese had the honor to commit seppuku (hara-kiri) BUT WE DON'T HAVE THE GUTS (PUN INTENDED)!

Tue, 10/16/2012 - 00:52 | 2893175 fourchan
fourchan's picture




bankruptcy is the new liberty.  i can see it now the bankruptcy bell,

bankruptcy hall, give me bankruptcy or give me death.

Tue, 10/16/2012 - 13:15 | 2895254 Hi Ho Silver
Hi Ho Silver's picture

Do whatever you have to to free yourself from the chains of debt.

Tue, 10/16/2012 - 05:17 | 2893645 AnAnonymous
AnAnonymous's picture

They had also a lot of civil wars... But keep it a hush hush, it would come as a counter example to the 'american' whim about the benefits of uniformizing the world.

Tue, 10/16/2012 - 08:42 | 2893921 TheFourthStooge-ing
TheFourthStooge-ing's picture

They had also a lot of indoor plumbing... But keep the flush hush, it would come as a counter example to the Chinese citizenism citizen whim about the benefits of AnAnonymizing the world.

Mon, 10/15/2012 - 21:52 | 2892827 FreedomGuy
FreedomGuy's picture

This is what should have happened at light speed along with the banks during the early phases of the financial crash. If we had let it "crash" I suspect homes would be half price, debt eliminated and we would have a real recovery in place...even in the face of idiotic tax plans like Obamacare.

Mon, 10/15/2012 - 22:19 | 2892893 Harbanger
Harbanger's picture

I agree with your point, but I wish Obamacare were just a tax plan.  It will put a select few from the FED in control of every aspect of our lives.  There is no behavior they can't justify controlling/banning.  Every decision you make will affect your body and thus the cost of healthcare in the US.

Tue, 10/16/2012 - 02:44 | 2893260 FreedomGuy
FreedomGuy's picture

Yes, you are so correct! National healthcare is the back door to ruling all of your life. Now, everyone in the country has a say in what you get, don't get and what you should do for the "collective" good. You can get taxed or fined for being too fat, not taking your meds or perhaps missing an appointment. Obamacare is probably designed to fail as it is a generally incompetent plan. The last phase in true national healthcare under control of the government that loves and cares for us.

Mon, 10/15/2012 - 21:26 | 2892736 centerline
centerline's picture

I live in a upper middle class area.  I can safely say that after talking to many people in my area, not a damn person is able to really pay down debt.  At least not without giving up standard of living.  Rather, folks are in a holding pattern... they are banking (no pun intended) on the low rates and waiting for a better tomorrow.  The only thing that is going to force them out of hole is exactly what will kill the economy.

Mon, 10/15/2012 - 21:52 | 2892825 FEDbuster
FEDbuster's picture

Like a turd that won't go down when a bankster flushes.

Tue, 10/16/2012 - 08:47 | 2893940 TheFourthStooge-ing
TheFourthStooge-ing's picture


Like a turd that won't go down when a bankster flushes.

Alas, alas (triple alas minus one), such are the problems inherent to the eternal nature of US of A 'American' citizenism. Such a troubling event would never manifest itself in AnAnonymously orthodox Chinese citizenism nations.

Mon, 10/15/2012 - 23:23 | 2892941 Rubbish
Rubbish's picture

I admit it, I am a deadbeat, or the Donald. Filed 2 years ago as my business was crushed. 230k in credit card debt bye bye, 1st and 2nd bye bye but I still live in my home of 24 years as I was current during bk. Now I don't pay the 2nd, plan on making them a deal soon as they have no equity like me. 4 1/2 yrs from retirement and I plan on coming out on the other side not being a burden to my kids. Checks in the mail.


And don't believe there is no credit after BK, start rebuilding early, I have 3 cards now although I kinda dig the whole cash thing I've been on for the last 5 yrs, no real balances.


And what's not to like, the whole proceeding lasts about 90 seconds in an auditorium where you're lined up like cattle, you swear in, verify this that, ID, thank you bye bye come again. Take the wife to lunch, stress goooooooone with that pile of bills. I would do it again in a heart beat if the situation arose. My credit score is now 670.

Tue, 10/16/2012 - 00:01 | 2893098 RSBriggs
RSBriggs's picture


Tue, 10/16/2012 - 00:11 | 2893123 foofoojin
foofoojin's picture

what you did was exactly how a debt based economy works. not all debts can be paid by the very nature of the system we work in. congradulation on playing hte game the right sound legal way. damn it feels good to be a gangsta!

Tue, 10/16/2012 - 00:38 | 2893156 Rubbish
Rubbish's picture

The gangsta part was I declared some pink sheet .09 cent stock, 25k shares that were worthless. I couldn't sell them to save my soul before bk, brokers wouldn't touch them. Trustee didn't want them either. Year later stock ran to $2.50, mine now ! That's gangsta !

Tue, 10/16/2012 - 01:15 | 2893194 Kimo
Kimo's picture

Maybe you can get a job as a paid shill.

(please ignore this message if you already have such a job)

Tue, 10/16/2012 - 05:44 | 2893662 ebworthen
ebworthen's picture


Can't blame you, no different than the banks or the corporations or the government.

Give them their own medicine and see how they swallow it.

Hey Timmy, Ben, Hank, Bush and Obama, CONgress, Supine Court, Lloyd, Jamie, and all the other you like the circus!?!?

Popcorn please.

Mon, 10/15/2012 - 20:42 | 2892629 butchee
butchee's picture

Three bullets...One, Two, Three  MAU!  MAU!

Mon, 10/15/2012 - 18:33 | 2892373 icanhasbailout
icanhasbailout's picture

choke on BK, bitchez

Mon, 10/15/2012 - 19:02 | 2892440 kaiserhoff
kaiserhoff's picture

Some bizarre stuff going on.  I see lots of obvious illegals driving around in brand new Gubbermint Motors trucks.

That's gonna end well....

Mon, 10/15/2012 - 19:14 | 2892460 JLee2027
JLee2027's picture

We're safe until there are machine guns mounted in the truck bed.

Mon, 10/15/2012 - 20:27 | 2892528 Bicycle Repairman
Bicycle Repairman's picture

Obama phones and Obama trucks, with walking around papers signed by Romney.

That's right, Romney, bitchez.

Tue, 10/16/2012 - 00:52 | 2893176 Dr. Sandi
Dr. Sandi's picture

Same guy, different tan.

Mon, 10/15/2012 - 21:02 | 2892667 Taint Boil
Taint Boil's picture




 …..illegals driving around in brand new Gubbermint Motors trucks.

Really, how is that possible? They paid cash? Got a loan? Illegal immigrants can drive around in a brand new truck but you can’t?!? Sounds like they’re more resourceful than you; maybe 10 of them working 16 hour days doing the work that nobody else will do paid for the fucking truck.

Wanna gut chickens for 10 hours a day …. Yeah didn’t think so. Wanna lay sod until 9:00 at night ..oh don’t want to do that either ……… Well just how are you going to get YOUR new truck?

So they bought a truck and are contributing to the economy and paying sales tax on it etc, etc. GOOD!!! JFC


Mon, 10/15/2012 - 23:27 | 2893045 PeterLemonJello
PeterLemonJello's picture

Soooooooooooooooooooooo, you think that those illegals bought those trucks from the dealer lot....paying sales tax.....and local charges.....upgrade......bwahahahahahahahha, you're a f'ing fool.  Straight m'f'ing cash homey. 

Maybe you don't realize what web site you are on???? Once the currency is ruined and people realize they're "middle management" skills are completely worthless, laying sod and gutting chicken jobs won't stay vacant more than a day.  Wake up moron.

Tue, 10/16/2012 - 07:01 | 2893716 Taint Boil
Taint Boil's picture



So you mean there is a way to buy a new truck without paying sales tax, commissions, delivery charges, no profits for the auto workers and auto companies and they get upgrades and extras without paying for them – damn, you’re right, I must be a moron.

And yes, I do know what website I’m on. I once use to think like you.

Tue, 10/16/2012 - 04:39 | 2893432 NewWorldOrange
NewWorldOrange's picture

Awesome comment Taint Boil. Frankly I've got way more respect for most "illegal immigrants" than for most American citizens, mostly for reasons you allude to in your post.

Tue, 10/16/2012 - 08:58 | 2893979 fajensen
fajensen's picture

They "bought" that truck on 27% p/a credit, GMC securitised the debt into 'AAA' bonds and sold it on (with a little fee on the side to some wall street crooks) and the sucker of last resort, the FED, will be buying them bonds as soon as they default. Win & Growth all around

Some people got a new car, everyone could do the same right now. What's not to like?

Mon, 10/15/2012 - 19:23 | 2892477 calgal
calgal's picture

omigod lmao! great response

perfect opportunity with the million muppet march......we could throw wads of chewed gum on them and then they would be all stuck together in a million muppet furball!

Tue, 10/16/2012 - 04:38 | 2893421 Muppet
Muppet's picture

Rut roh...

Tue, 10/16/2012 - 08:36 | 2893897 sessinpo
sessinpo's picture

Muppets, otherwise known as lemmings, kill themselves.

Mon, 10/15/2012 - 18:41 | 2892396 spinone
spinone's picture

The American Way of Life is non-negotiable.

Mon, 10/15/2012 - 21:41 | 2892804 Freebird
Freebird's picture

Until it isn't Spinone

Tue, 10/16/2012 - 04:42 | 2893487 NewWorldOrange
NewWorldOrange's picture

Only until the dollar is non-negotiable.

Tue, 10/16/2012 - 07:53 | 2893760 dolly madison
dolly madison's picture

Going into 2008 my debt was only half of what my real estate was valued at.  I did not think I was doing risky behavior, but it fell apart anyway, and I had to default on a mortgage and some credit cards.  Lots of people over the past 4 years have had to default even though they weren't muppets.  Maybe some of the earlier ones to default started in a bad place, but the values have droppes so much  and many people have been laid off since then.

Tue, 10/16/2012 - 08:14 | 2893819 Rentier
Rentier's picture

For those on the "foreclosure stuffing" thread who don't have a clue and posted a response to this by  me:

"To add to that, down the road when the bank forecloses and sells the house if the bank so chooses they can drag you into court and get a judgement against you for the difference you owed on the mortgage to them and the price they sold the house for.  It is no different then defaulting on an auto loan.   Even if the bank doesn't go after you for the difference the IRS will expect you to pay taxes on the difference if the bank doesn't make you pay it since the IRS views that as a capital gains and tax you accordingly."

try reading this:

Mon, 10/15/2012 - 18:11 | 2892326 CPL
CPL's picture

I am George Bush Junior, I signed the paper that started the endless bailouts and I do not recall that particular piece of information.

Do NOT follow this link or you will be banned from the site!