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US Households Are Not "Deleveraging" - They Are Simply Defaulting In Bulk
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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The corruption at the top end is all about "The Alchemists" chapter in Mackay's ...Madness of Crowds. As soon as the rabble get into the business, it has to end.
What's interesting is that there's no obvious escape route at the moment--no one has found a comfortable money-machine for awhile now. This has to be bothering big old money.
To answer: I'd bet probably yes, but the majority hasn't been fooled for awhile. They're just too demoralized to bitch at the moment.
centerline
my 07 story is similar in that the "holy fuck it's over moment" was the same. In line at the building permit office and it's now FULL of sketchy looking dudes with rumpled clothes, missing teeth, (slightly crackish looking) with rolls of drawings under their arms. I laid off 5 of my 6 guys that week. Felt terrible doing it but now 5 years later and not paying myself since june of 2010 it was the absolute right call.
Back in '06, I met a guy that was betting an average 10k a hand at a blackjack table (and doubling down often) at the Bellagio.
I came to discover he was a former truck driver, who came to Nevada from California, to get in on the hot "flip" game.
The year prior, he made over 5 1/2 million simply putting deposits down on Del Webb (owned by Pulte Homes) condominiums, waiting a year, and reselling them. In 2005, he paid 135k (approx) for them, and sold them for between 180k and 210k within 6 to 18 months.
I don't know what became of him, but he had doubled down on the flip game, too, and was "holding" twice as many Del Webb condos in 2006 when I spoke with him than he had flipped previously.
He was nice enough guy, and I wondered where he got his seed money, but didn't feel it was my business to ask, and I'm sure he got blowtorched if he was a pig and didn't cash his chips out and sit the next round of flipping out (assuming he was able to offload his then-existing inventory).
p.s. - This is why Del Webb instituted a "lottery" based system of deposits to purchase a new condo in Clark or Henderson County, Nevada; too many people were flooding into their developments and turning their models into a literal carnival. Their developments looked like literal carnivals, transients and all, except with nice clothes, Mercedes', and $15,000 watches-- but many of them were weird Noveau Riche', sleeping near the sales models in their cars rather than at a hotel; like I said, carnival atmosphere, only different.
centerline...I have a weakness for horse racing, although I seek value. Your point is exactly spot on. I have seen...particularly on big racing days, where a heavy favorite, maybe 1-1 or 3-5, will have a "Show" pool (3rd place) that is 3 or 5x larger than the win pool.....all for 4-5% money. In racetrack parlance, they are called "bridge jumpers". Over the years, my experience has been that 8 out of 10 times, the bet is safe. But those 2 times....when some mug throws down $50k to make $2.5k...or a $100k to make 4-5k....I've seen the favorite lose. You just know someone's life just got very different.
All the bridge jumpers are all in on Wall St. They've been ok here, 6, 7 times....that 8th, 9th time is coming....and sooner than they think.
Great comment.
You see 'bridge jumpers' all the time in sports betting (especially NFL)...
Last week, for example, the undefeated Falcons were laying 9.5 to the pokey Oakland Raiders (who were playing an early game in the East Coast time zone... Sure thing on the blackbirds right? (with Matt Ryan on fire & playing one of the worst secondaries in the NFL)...
Many of the 'bridge jumpers' got clever and decided to 'tease' the line in their favor down 6 points to Falcons -3.5... You know ~ LOCK IN that sure thing... Matty Ice tosses 3 picks in the first half and the Falcons barely come out alive, winning by 3, but all the EXOTIC bets (as well as SU bets) went the houses way...
I just got the new FED 3.0 package down at Staples....if has blank bill notes and special ink. Compatiable with windows 7, and printers from Canon and HP!
The definition of mixed emothions is!!!
Your mother-in law driving your Mercedes over a cliff..Deleveraging
How dare you disagree with the Fed
Deleveraging is just some bait to real the suckers back in... and if that doesn't work, it's an excuse for Ben to print even more. A win-win for the sloshing money whores.
Everyone assume the position...
Cancel tomorrow. The world's not coming home.
This wasn't how the redistribution of money, and government "urged" and in some cases required (bad) loans were supposed to work. The weasel went pop at the Keynesian endpoint.
That's not deleveraging.... That's defaulting with style..
Sheriff Woody.
While Obama may approve this message, there is no real answer from financialization specialist, outsourcing champ and offshore tax haven maven, what's his name, as to what he'd do.
Chances are JPMorgue would be quite pleased as would KY trailer dweller conservatives who hate Obama because he is a socialist, albeit one who says things and does things that are indistinguishable from Calvin Coolidge.
Just say-n...
:-/
Whatshisname's solution to everything is austerity. Austerity for you. Pain and no gain. For you.
Jingle mail!
if you die before maturity, according to keynes its not debt
Good news!
voluntary or not, discharges are a form of deleveraging and i am delighted to see them happen....the lies and frauds committed to avoid this process are criminal.....
as i noted before, the bankster bailouts, and any number of serpentine schemes to shovel money at banksters, are a method of paying banksters to keep housing inventory off the market - that is what qe is all about, charlie brown.....oh - and to pay stellar bonuses for criminal work....
of course, qe is also needed to keep the crap on the fed balance sheet afloat - nothing like seeing a clogged punch bowl full of turds.....and no amount of champaigne can mask the smell....
The biggest difference between discharge and deleveraging in this context is that it means that unit of discharge (i.e., household X) is now ineligible for major debt incurrence for a period of time, usually 4-6 years, thanks to FICO, and actually has to, gasp, live within their means. Add up enough of these, and suddenly you have a US housing market which has a maximum debt capacity materially lower than before, which also limits the total credit bubble size which can be inflated. Because we all know this is the Fed's explicit desire.
Bottom line, this is potential "flow" that is removed from the market for a long period of time.
As for the stock offset, naturally it is up to the Fed to step in, especially since as we showed a few weeks ago, the Financial sector has also been deleveraging and continues to do so to the tune of $3 trillion or so.
Times have changed.
Not too long ago lenders did not care one bit about FICO scores.
10,000 bank scandals later, with zero prosecutions, and the bonuses still flow.
I think a lot of people have sworn off dealing with banks and major debt incurrence for good.
A lot of the CC debt was a bunch of bullshit anyways... Banks were lending out money hand over fist to anyone with a pulse... Many got lured into zero interest rate credit cards which were basically 'same as cash' and you could write checks with them... Some even used these advances to pay bills, car payments, mortgage payments, whatever...
After 2008 ~ the banks exercised clauses in the contracts, and those who were making minimum monthly payments at the zero percent rate all of a sudden got notices that they were going to have to pay up to 30% interest rates on outstanding balances (that's what did them in ~ the interest balloon that the bank levied on them)... So most just said 'FUCK THIS SHIT' after figuring it was all a losing battle...
Maybe I'm naive or something, but I personally think all the various "credit enhancements" combined with the cronies at FNMA and FHLMC being "forced" to pay for it at par (courtesy of the US taxpayer) had a lot to do with it.
The money was looking for people because it was even better for lenders if they didn't get paid back.
It's a great way to steal money from people who don't have any...just give it to them.
And still going on. But at reduced levels. Starting to starve itself out.
Is all about cash flow. Not stock. Even marginal flow can keep the ship afloat for quite awhile. So, as long as the check can be kited one way or another through society and through the desperation of capital seeking return/safe haven, the story will continue.
The point is that each of the things that remove yet another avenue for debt creation add up little by little, like straws on the preverbial camel's back. One day... "SNAP." and we won't see it coming.
The CC issuers were pulling crazy predetory lending bullshit long before 2008. A lot of that actually got reined in in '09 (I think - I'm old and worked late and don't feel like googling around). Like - changing the monthly due date at whim and always giving the dirty D's in super-fine print legalleze they know the average shmo won't read and then hitting with crazy late or over limit fees that the new crazy interest rate also applies to so the bill goes exponential. This since eary '90's at least. And signing up kids and "special" accounts for people with poor credit. This has been a VERY long cycle of bullshit.
"changing the monthly due date at whim."
Like, fuckin' A, yeah, man! And I thought I was the only one who noticed that. ("Let's see ... how do we sucker some honest schmuck into paying his gas card late and incurring a '$30 late fee'?) Those fuckers, those motherfucking motherfuckers got me two or three times with the day later, day later, day later, four days earlier ('per our agreement') shit.
I cannot - CANNOT - fucking believe I continued paying those motherfucking motherfuckers as long as I did.
Coulda retired.
FHA will approve new financing with a FICO of 580 and no short sales within 3 years. Hell almost everyone who threw in the towel pre 2010 can buy again at cheaper prices and lower rates.
Or they can wait 2 years and get 30% off.
We're not even close to a bottom in housing.
"unit of discharge (i.e., household X) is now ineligible for major debt incurrence for a period of time, usually 4-6 years, thanks to FICO"
Oh, so this is the rule that will stick. OK.
"ACLU says Morgan Stanley over subprime loans"
http://www.businessweek.com/ap/2012-10-15/morgan-stanley-facing-discrimi...
"The American Civil Liberties Union accused Morgan Stanley of violating civil rights laws by encouraging a lender to push more expensive and risky mortgages on black neighborhoods in Detroit."
BusinessWeek needs to fix the headline title for this article, but that's the gist of it.
Well, I'm glad that the legal system will get black folks off the hook. I wonder how long before they can go back and get cheated again.
"The jobs are coming"
> And why not: after all this behavior is being endorsed by the Fed with both hands and feet.
Well, yeah, except that "endorsed" does not really capture the spirit.
The Fed has absorbed ALL of the losses except the ones that led to small bank failures!
slight generality here: "...US households do not delever unless they actually file for bankruptcy, and in the process destroy their credit rating for years..."
Unless of course you are like me and decided that being debt free was worth lowering your bank balance which was making buttki$$ for interest and paying off a mortgage with that money instead. Having a roof over your head that is not owned by the bank makes for a good feeling, especially going into uncertain times which may include a depression.
Okay, with 20/20 hindsight I would have played silver with that money -- bought at the exact lows and sold at the exact highs and paid off the loan with someone else's money, but my track record with 20/20 hindsight in advance is not very good, so we just paid off the mortgage. :) Now I play silver with no worries.
Tyler, when you put this type of data together, instead of just ranting, you are really worth the advertising on your blog. Shit sandwich ... yikes...
My wife and filed BK last year. Best thing we ever did. We actually have money to spend in OTHER parts of the economy, instead of everything being funneled to 3 banks every month. With our finances in order, we haven't needed credit for anything. Two weeks after we filed BK, Capital One (our main creditor prior to BK), had sent us an offer for a credit card specifically for people who filed BK. Smart on their part to do that, as they can try and slowly recoup their losses from us, full well knowing we have no other debt now and could afford a new CC.
I still believe in adhering to ones debts, however, since you agree to take them on. At some point, however, you have to do the math and figure out if you want to exist in insanity for the rest of your life, or scratch things and start over. We're actually doing the economy a favor now, as our money is being spread out across different restaurants, stores, etc. Buying things we've been needing, but couldn't purchase.
If everyone starts doing this, the big banks lose some money, and the rest of the economy can start growing again.
Lincolns Mullet... If your home has a kitchen you do not need a restaurant.
As far as buying things that you 'have been needing, but couldn't purchase' are you certain that you need these things or simply want them?
Credit cards are useful at gas stations, auto rental, hotel rental, grocery stores, etc, IF you pay them off each month and do not begin to accumulate another pile of debt.
Self discipline is the only way to avoid the trap you and your's were unfortunate enough to fall into prior to BK. Someone in your family needs to 'just say no' to CCs if the will to avoid debt accumulation is not there.
you don't need a credit (Hah,DEBT card is the real name) card, just a debit card if you insist on using bankstas fake digits 10111111000010 swopping machines
Snidely: I actually took Capitol One up on the CC offer. It has a $500 limit, no annual fee. I agree, CC's are useful if used wisely, and it's important to have at least one. Hotels, for example, hold a ton of money on your debit card and is just inconvenient. Trust me, we cook in our kitchen. I love food too much, but of course we like to go out. We weren't doing that AT ALL before.
Just like anyone else that gets in over their head in debt, we made some bad decisions that got us there. Do I necessarily feel bad about it, when the entire banking industry is one big greedy fraud? No. BofA pimped billions from overstrapped people just through overdraft fees, let alone what else. They'll get their money back from our BK's, one way or another...through shady practices, or another bailout when the shit hits the fan again. Either way we pay for it.
Manageable debt is valuable. Banks are valuable. What we've had over the past 15 years are banks gone wild, and a naive population who during this entire time, believes that "those at the top" must know what they are doing, and wouldn't possibly jeopordize the entire world economy. Never! So we borrow, and spend, just like good citizens.
BK itself wasn't that expensive. The amount we save each month, and the monetary freedom we've enjoyed since has been worth the price. I paid $3k cash for a used car. I paid $2k cash for new furniture. We don't need credit cards for most purchases, because we can save the money now.
Yes, and most of our purchases have been necessary. New water heater, 2nd car (we work in totally opposite directions of each other), furniture to replace cheap ones we had for 4 years and the springs were shot, and I admit...I bought a new Galaxy S3 last month, replacing an old phone I had for over 2 years. So I enjoyed myself a bit, sue me! lol
My stereo (upstairs in the bedroom) is as follows:
$15 ... Sony SS-MB350H speakers (very, VERY inexpensive new [$100 plus or minus (mostly minus)]), but truly spectacular quality (seriously, they caused a minor sensation in the audiophile community when introduced). $15 at a garage sale. I cannot overstate just how good these speakers actually are. Kudos Sony.
$20 (plus sales tax) ... PSB SubSonic 6 subwoofer. This was the absolute best subwoofer made under $1,100 circa 2004. I can attest to the following ... it is absolutely incredible. Yes, I am sure one could buy a better subwoofer, but it's not going to be any better in terms of what you can hear (unless one is just looking for bigger and louder, in which case there is no limit). It will, and does, in verifiable and demonstrable fact, reproduce the lowest sounds produced by the bass pedals on an organ (16-20 kHz or thereabouts), albeit at slightly reduced volume. It is an extraordinary piece of serious audio equipment. I scored. Big time. Probably the second or third best purchase I ever made. Oh, and, it appears, literally, to have been brand new. I don't get it. Who spends six hundred dollars on a subwoofer, and then never uses it?!? BTW, the Sonys mentioned above also appeared to be perfectly, literally, brand new. Also, BTW, these two devices work very, VERY well together, which I think is actually credit due to the PBS subwoofer, which is generally acknowledged, inter alia, to be extremely easy to mate with a large assortment of very different speakers. Kudos, Paul Barton. Massive, old school device.
$35 ... Pioneer SX-990 stereo receiver. I think I was still in high school when these were made. The only bad thing that can be said about this receiver is that, at 27-35 watts per channel (depending on how it is measured), it just does not have quite enough power to drive the Sonys to deafening levels. Loud? Yes. Quite loud? Yes. Very loud? Depends on source material. But deafening? No. Ugh. Starts to clip. Sad. Because every now and again, I like digging out, oh, I dunno ... ZZTop Eliminator, Ozzie Ozbourne Diary ..., Jethro Tull Benefit and some other stuff from when this receiver was built and make my ears bleed. Can't do it, though. Almost. Not quite. But ... at least it has a preamp/main in thing so I can use the crossover in the PBS SubSonic 6, which ia actually very, VERY sweet. (If you like this old analog stuff, you gotta try this. I never understood why this feature existed back in 1972 - still don't - but it sure is nice now with active subwoofers with all the adjustments. (Which, of course, did not exist back in 1972, so why exactly were there preamp out/main in connections on the back of these old analog receivers? Near perfect working condition (had to replace lamps) and even better cosmetic condition. Working phono in. (I actually had an old turntable in the old hole in the wall behind the refrigerator in the kitchen - don't ask.) Nice piece of equipment. Wish I had more efficient speakers. The Sonys, good as they are, are just ridiculous efficiency speaking.
$12 ... Sony something or other five-disk CD player. Nothing exceptional, but good working condition, good cosmetically, working remote included.
Total? $82 and change for an absolute scream ass stereo system. And I do mean scream ass. Sounds 94%? 95%? as good as anything - ANYTHING - at normal/realistic volume levels, and if I just had another 15 or 30 watts, I could make your ears bleed in perfect high fidelity.
Yeah. Eighty-two bucks for serious, high end audio.
I got lucky 'cause I had no idea what I was doing until I got it all home and looked it up on teh interwebs.
So, yeah. Let's all enjoy ourselves a bit for eighty bucks.
Just scream ass stereo, I tell you. Never thought I'd own a system of this quality. Gordon Lightfoot? Uh, yeah, sure, please have a seat over there, Sir, while you perform Minstrel of the Dawn. (By the way, how many of you knew that Don McLean [sp?] bumped the mic stand with the neck of his guitar while recording Vincent ['Starry, starry night']? Clear as day.)
If you know what you're doing, or just get lucky like me, you can get a lot of pleasure out of just eighty dollars.
Lincolns Mullet: You paid an inflated price for your house due to the bubble the Federal Reverse created. Your interest rate was set by bankers breaking the law in London, and not set by the free market. If you rent, your rent was higher because housing prices went up and have been propped up since. You were offered additional credit cards and higher lines of credit because of the same asset bubble. If you spent the money, it was because everyone did it and you should too. If you had student loans, it was because the government meddled in college education, increasing the cost for everyone and making loans necessary. If you had child support, it was because the government mandated it, and encouraged divorce as good business for it's courts, then arbitrarily set child support to artifical published guidlines - because that's what a study claims is the cost of raising a child.
In any case, fiat currency and the governments wrongful intervention time and time again into markets is the problem that helped cause your bankruptcy. You should be mad as hell. I am. And I refuse to declare banktupcy and let them have another bite at the apple.
We, (99% of America) are all going bankrupt under this system. It is a matter of time. Stop all payments to the thieves. That is the only solution.
' Stop all payments to the thieves. That is the only solution.'
But.. But thats what Iceland did....
and now they are.... doing just fine.
I agree with you JLee...iit's easy to look back in hindsight and say, "Well you shouldn't have taken out that loan." Most people, prior to 2008, just didn't pay attention to asset bubbles, or worried about their own government working against them in such a way that it would create such unprecedented devastation. I lived in Cali during the housing boom and back then, when I had blinders on, I wrote a blog saying this just didn't make sense. There were no jobs to support the 2 story cookie-cutter homes that were being built 200 at a time. I couldn't believe thousands of people in San Fran suddenly decided to buy a house in the valley, and suck up a 2+ hour one-way commute every day. But even then, I had no idea what was truly transpiring at the time. For me, it was a local phenomenon, I didn't gauge it on a widespread level. Most people don't think that way.
We bought our home, admittedly, during Obama's "Get 8k back on your tax return when you buy a home". We just happened to be looking at the time this "deal" was going on, so we took advantage of it. We bought at $190k, with the loan down to $178 now. It's probably worth about $170k on the market, but we haven't looked into it. Houses around us are selling though.
Zerohedge and Tyler specifically has tended to write about housing as simply an asset to be counted, but a home is far more than that. I don't care if we're underwater because we have no plans to move anytime soon, and I have zero desire to borrow any equity, even if we had some. If the house was now worth $100k, well, then we could sit here and consider a strategic maneuver. Stop paying, save the money instead, and in a year we have $18k, nearly enough for a 20% downpayment on the very house we defaulted on. Would we get a loan? Who knows. But a bank probably wouldn't balk at $20k hard cash for a $100k home, and having more than enough income to pay the new mortgage.
So, I can understand if someone's underwater by THAT large of an amount to just default, and buy a home that's 50% cheaper than the last one. But in our situation? Doesn't matter. I love the house, we can make the mortgage...it is what it is.
"Capital One (our main creditor prior to BK), had sent us an offer for a credit card specifically for people who filed BK."
LOL. I bet you can get a mortgage, too. Right now.
Heck he has us to pay off his next bankrupcty. Perish the thought of the banks swallowing the loss. Just print up some more money to pay off the next go around of losses.
I still believe in adhering to ones debts, however, since you agree to take them on.
Not when the government is colluding to reduce your wages, destroy the value of your home, debase the currency, generally trying to destroy the middle class.
Tyler, What about your teams willingness to address (or take a pass) whether the entire debt boon doogle may actually be "planned". I know you don't like to get too deep into issues you don't have data to backup, but this is a rather important subject, and Zhedge seems to suggest this is all a be mistake...I am not so sure. Does this all lead to global currency? Is it not a little bizarre the Fed Bank will soon own all mortgages and Treasuries? What is really going on here? I would like to see you really open this subject up to as many of your guest bloggers as you can/ If you really want to rock the boat and go down in the history books, consider tackling this subject. Your credibility is second to none at this point. Symposium Zhedge "Is the global debat collapse planned and is so, what is the followup plan". Surely you could come up with something-or nothing after some deep discussion with your network.
Federal bankruptcy is not really an option, first off, who would be willing to buy the debt (ie accumulated owed dollars) and what exactly would they purchase the debt with? Until another reserve currency is used world wide, you haven't got any leverage of any kind to change the way things are now. And a possible currency war would preclude any other country from having those capabilities. The consequences of which would be higher energy prices here, to offset any currency stronger than the dollar.
TahoeBilly: There is enough info out there to make the case that it was, at least, partially planned (or as things started to roll forward, those at the top began planning how to take advantage of it before it collapsed). I can't imagine there weren't people who noticed a massive asset bubble forming. Instead of stopping it, they rode it all the way.
1999 was when Glass-Steagal was repealed, the Depression-era law that kept banks separate from investment firms. Republicans passed it, Clinton signed it.
In 2002, Bush Jr. said, "By the end of the decade, we will increase minority home ownership by 5.5 million". He goes on to say the biggest obstacle to this is "large down payments". Well guess how we fix that? Read on...
Under Bush, in 2003 and 2004, the 0% Downpayment Act was created and the ADDI Act (free money to poor people to purchase homes). Not only did minorities and poor people not need a downpayment to buy a home, but nobody did!
Bush Jr., in 2005, enacted very strict bankruptcy laws. Nice timing...
Henry Paulson, while he was with Goldman Sachs, lobbied the SEC to remove the 10% reserve requirement for banks, which is there specifically to shield them from large losses. Which they removed, allowing investment banks to pour more money into the MBS market. Paulson then, at the height of the crises as Treasury Secretary, boldly asks for $800 billion and total oversight of the money...begging to save us from the very problem he helped create.
When something looks like shit and smells like shit, it probably is shit. It's difficult to believe all of these things were coincidences, all leading to the greatest financial disaster since the Great Depression.
clearly this attack on Americans IS an inside job...yet there is little or no discussion on this forum acknowledging this simple and obvious truth.
incompetence cannot account for the financial disaster...nor can one logically blame the working poor for levering up with government enabled loans.
So why did they do it? What was gained? Motivations?
Federal budgetary expansion, power consolidation, selected wealth expansion and a weakening of individual state powers.
good thinkin' Lincoln.
Hahaha I was wondering where all that TARP fiat went...
you do not owe the DEBT COLLECTORS anything !!!!!!!!!!!!!!!!
Well, there you have it. Zerohedge just presented the reason for QEn, that I've been arguing it's been a long time.
If people are defaulting, the big banks (primary dealers) MUST do CDS payouts. Simple, simple, simple.
Question 1: Where are the Primary Dealers going to find the money to do the payouts?
Answer: Of course, sell anything they have at 100% price to the Fed so they can use that money to do payouts. Very soon they'll have nothing to sell, hence practically nationalized.
Question 2: Who are the counterparties of those payouts?
Answer: I have only bits and pieces of information here. They are mostly quasi state owned chinese and russian banks. Part of the money is used to buy S&P stocks from mutual funds selling them, to return the favor to the Fed for buying crap at 100%.
It's looking like this:
The Fed is ending up owning ALL BOND MARKET
Primary Dealers are ending up owning ALL STOCK MARKET.
Theoretically the system collapses at this point since no more CDS payouts can occur.
that is a hell of a lot worse than 1987 ekm. i don't even know what that is.
There were no 600 tn derivatives in 1987. Gambling became legal in 2000 with the commodities modernization act.
http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
if the derivatives markets implode and we get a 20% crash followed by an upswing that recovers all the losses in a matter of months and that is the extent of the damage i will put my IRA in facebook and start talking like obama phone woman.
The upswing can happen only if the Gov buys stocks.
What is an derivative? It's a bet.
I have $100 but bet $1000. You have $90 but bet $1000 with me.
It can be only 1 winner. The other has to come up wiht $900. Where am i going to find it? I'll sell stuff.
I have no wife, no kids. I risk. You have wife and kids. If I were you, I'd be 20% gold burried in the backyard and the rest pure cash.
I guarantee it doesn't corrode. My grandfather kept it underground from 1945 until 1990 when communism fell. I have 3 of those coins with Napoleon's face on them.
http://www.usagold.com/gold/special/nap50.html
Isn't filing for bankruptcy and opting for a bailout the Wall Street and Washington model?
What did they expect, responsibility in the face of legerdemain and skullduggery?
Eat it you fucking bankers and worthless politicians!
Wall Street is still leveraged to the assets that Obama is propping up and the Fed are blowing rates down into nothing = housing. Great, worked really well last time!??
Apart from the usually repo's, swaps and general money printing. The market is still reliant on a housing bubble to be re-inflated. And it is somewhat being re-inflated. I would not have bet against the banks this profit reporting, of course industries have gone no where and written down. But, banks are rising again. Looks and sounds nasty. A sharp re-inflation trade of the housing market.
I suspect, maybe next year (early) once the stock market crashes (could be end year, depending on when the market decides to take profits), Wall Street will look for bailouts again and we redux 2008.
Incorrect.
Fed creates money ONLY by buying something.
Primary Dealers can get funds from fed only if they sell something.
What are they going to sell? CDS contracts?
No, they hold collateral/assets i.e feds balance sheet via banks that the Fed print into. That's it.
There is no real evidence the Fed holds stocks, yes, they probably have a load of derivatives on their balance sheet, but, in a non tail risk trading environment - like now. The CDS trade is less risky and less a problem to hedge with. I would suspect they have been sold back to dealers in recent months. All and all the Fed/ECB are money printers of the n'th degree. However BoJ and PboC do buy indirectly in stock exchanges, usually through pension funds. Of course they buy FX daily. Nothing is held for a great deal of time
This current stock rally is almsot 100% long (held) market. Means that he holders are not cashing in just yet, its marked up and supported by good earnings via banks via housing market spike. Point? Central banks underwrite the market but don't buy into the market, they allow Wall Street to make money/hold stocks etc and in theory will spread the money around (new loan/credit). Obama and the Fed are shoving rates down artificially via money printing into the mortgage market, so new homes sales look good and the home ATM revs up.
What you got to look at is that profit needs to come off this rally at some-point, it's extended as CB's have smashed the tail risk down. But...history repeats. Will will 100% have a crash, when? Who knows. But it could be soon (a slight ripple somewhere could be about to rip through). Then you'll see your CDS/Bond/spreads blow out again. Banks print again etc etc etc.
Till the system just blows up
also the market is very crowded, and valuations are stretched. Asia is a great cue for cyclical selling. they sold hard last week but dow and S&P quickly recovered.
it's looking more and more shaky.
Yup.
Bubble part deux, or is it tres?
The whole point is blowing bubbles to rob savers and the responsible for the sake of the bankers, the political class, the kleptoligarchy.
Ponziville U.S.S.A.
The Feds been doing a lot of buying, especially US Federal Debt. US Federal Debt is spent before the ink is dry.
Banks are also fueling a commodies bubble as most strategic commodies have remained strong despite the Mess in Europe and the slow down in Asia.
"What are they going to sell? CDS contracts?"
Its likely that if the Derivatives get shakey, the fed will find a way to purchase bad contracts. For now, Buying US gov't debt and MBS has prevented a Derivatives meltdown. Perhaps When the EU breaks up, the Fed will need to step up and prop up the bad bets.
What are they going to sell? CDS contracts?
Actually yes. Fed is backstopping 600 trillion of CDS for Wall Street banks. Major "credit event", all 600 trillion has to pay out, Fed has to print $600 trillion to pay them off.
What would printing $600 trillion do to the US dollar?
Can you say "instant currency collapse"?
It's a sh*t hustle Obama and nutso Bernanke.
Very sh*t...embarrassing too I might add.
Academic idiots.
They are not deciding anything,imo. Managing timing of predetermined policy at best.
Stick to the plan bitchez!
An increase in personal bankruptcies is symptomatic. The real story is the total lack of attention to the real issue. And the next bombshell to hit the folks won't be dischargeable by bankruptcy. Go back and check fight clubs' references to student loans.... no collateral and no escape - except through inflation. Say goodbye to the penny. Hell, say goodye to the dime.
They'll be making pennies (and probably nickels) out of plastic before they retire 'em, you can bet on that.
Somebody already is...
More than a few times I've come across a plastic Lincoln penny in a coin roll that looks just like a real penny... U dunno where they came from, I suspect some carnival gag or something, but I've come across several at different times, & have been confirmed (by others all the way across the country) that they have as well...
Well maybe everyone will start taking on debt again when the USSC rules to outlaw Ebay,craigslist, yard sales and selling anything used. Goddamn motherfuckers. Might sound blown out of proportion but there was a good amount of US based mfg's out in the open during SOPA about wanting those sites shutdown so people wouldn't have an outlet to sell used products. You have to buy new, once you buy something it's yours for life unless you throw it out.
And save me the bullshit "well let's just barter" because the last time I checked you can't back up to your mortgage company with a truckload of fucking garbage in trade for your monthly bill.
Think it's ridiculous that Spain outlawed cash transactions for anything above 2k?
Then you really might find it hard to believe that Lousiana outlawed ALL CASH TRANSACTIONS COVERING ANYTHING USED over a year ago. Yep, bet you didn't know that huh.
You might say im up in arms about this because my livelhood is buy/sell. Never did I foresee this kind of idiotic bullshit potentially ruining me. I've already been ruined once in this massive economic recovery im no fucking mood for it again.
I like your raw anger. The army we are building needs men & women of all types, including those full of piss & vinegar.
Is The Data Better Off Than It Was Five Years Ago: Apparently Not http://chartistfriendfrompittsburgh.blogspot.com/2012/10/is-data-better-...
What seems to be poorly understood is that NOBODY cares whether or not they can borrow any more money for the next seven years - which is the length of time a bad debt stays on your credit report. I have $16,000 worth of credit at Home Depot and I am seriously considering "buying" $16,000 worth of appliances and selling them in the HD parking lot for $8000 cash and then just laughing as HD tries to collect. I have a similar amount of credit at several other places and am thinking of converting that credit to cash in the same way. Seriously, does anyone think that your credit report matters anymore? Does anyone have any idea where we are going to be in seven years? I don't think so. Grab it while its there to grab people.
many moons ago a fellow student enrolled in the same program as mine needed money in order to survive. upon entering many commercial establishments he was asked to enroll in their store credit card scam, assuming the name Sean Hino and with his neighbors address he was able to acquire several cards with a $500 dollar limit (prob. equiv to $2500) in todays dollars. Multiple purchases later he was able to go around the studio of several hundred kids and sell items at half price. I'm sure "Sean Hino" never paid the bill.
Just got some new stuffs on the card.
SPEND TIL WE SINK, FUCKERS.
And I'm not being a smartass here. M.A.D it is. We didn't set the rules, it's the politibankers that made the rules. Fiscal wisdom is outdated.
Sean is that you?
AWESOME another DOPE!!! Obamamania!
Spend the next twenty years getting back to zero or go strategic on your bank loans. It's an easy call for anyone in the middle class who is more than 200,000 upside down. My cousin just bought a fannie mae foreclosure with financing 3% down after giving two back to the banks 2 1/2 years ago. Crazy.
Spend the next twenty years getting back to zero or go strategic on your bank loans. It's an easy call for anyone in the middle class who is more than 200,000 upside down. My cousin just bought a fannie mae foreclosure with financing 3% down after giving two back to the banks 2 1/2 years ago. Crazy.
Good article, though the part about 800 billion is equal to 1.2 trillion was confusing.
You didn't default on that. Somebody else made that happen.
But I can still get a HELOC loan and use that to buy a Chevy Volt and get that $8000 rebate, right?
Shortly after my father filed for bankruptcy he showed up in a newly financed Cadillac. The bank told him he was a better risk because he could not file again for 7 years.
Worse he went bankrupt when his credit card kiting scheme unravelled. I had thought that was a crime but apparently not.
Lets follow the money comardes;
1.) Banks hide inventory - or else poof there goes the business.
2.) 40- 80 Billion a Mo.QE3, 4 , 5, infinity, levered up to who-knows-what given to banks in exchange for those bad old "hidden mortgage "assets".
3.) Same banks buy treasuries with Bernanke-Bucks to prop up the Politburo D.C. system, while they unload those stinky defaults in the vault. Whew, Finally business is profitable on paper.
4.) The secret owners of the private Fed get everyone's mortgage & real estate for free with made up Monopoly money.
As a US taxpayer sucker all I hear is Weeeeeeeeee! coming from the cigar smoke filled mahogony rooms.
And all Yahoo news & Americans care about is what an acress is wearing when her skirt gets pulled up.
Well they got the goldmine & we got the shaft
So the banks screw the taxpayer, and the taxpayer screws the bank. Everybody is screwing everyone, what else is new.
I used to do volunteer work for as local credit union here in the UK.
It served a mainly working class area and frankly we had lot of older customers who were deliberatley building up credit card debts and other loans with no intention of paying them off. They were planning to default or die with their debts. Most of these people were on some form of state pension or social security payment and borrowing was just another way of maintaining theior lifestyle.
The only thing they cared about was getting cash in any way they could - it was not a loan in their minds as they never intended to repay it. A lot of people live like that for years and banks are deluded if they think they will ever get their capital back. They do like counting the interest income as 'profit' until the day these customers choose to default or die though.
In a nutshell what I did...
I bought a house in 2004. I used the equity in Jan. 2008 and bought another house. 2010 rolls on through and I am half way finished with my 99 weeks of unemployment and credit cards are racked up. What would you do? Should I get a job and start the cycle again? Work, Taxes, and Death?
I default. Stopped paying all unsecured and secured credit cards and loans. I never had student loans. :) Once one year passed I filed Chapter 7. It has been a little over a year since my discharge. In the end, I still OWN both my houses. I still OWN my Jeep and my boat. These I had to buy back with cash in my BK, but it was worth it. Having NO DEBT is real freedom. Everything is cash now. Having no debt means my bills are only about $400 a month.
A foreclosure is started on my rental property and only a 'default' has been entered on my homestead. The lawyer I retained has two 'Motions for Dismissal' in the clogged pipeline of foreclosure hell.
My neighbor stopped paying about 5 years ago. I look up the case in public records and it is going nowhere. I have my best friend renting it from them for $450.
The whole system is a joke. All of it. If the bank wants the houses, come and get them. They don't because all the FIAT behind those loans are gone. Discharged in my BK7. I bet the banks can't wait until I can take a HELOC out against them again.
That was / is my de-leveraging plan. It is working out perfect until it doesn't.
Great i don't mind paying your bills. I'll put you on my payroll with the rest of my family!
I am sure I pay my bills. And I am sure since banks loaned out unsecured loans they are the ones paying for my misbehavior. $90,000 in credit cards defaulted. $280,000 in mortgage promissory notes evaporated.
Everyone must do what I did. Corporations and individuals. If you have any debt, you are part of the problem. I don't care if you have the means to manage it, you are part of the creature from Jekyll Island.
Now if you aren't joking around... The money orders can be made out to CASH. Message me for address. I am good for the 1st of every month. How much can you spare?
The more people that default the better.
Defaulting in bulk like the U.S. Government and Corporations and Banks?
Imagine that.
Talkn' Japaneza all is fine Housing Collapse is over.
I'm going to be out of debt by April 2013.
Its going to be fucking sweet. Especially since I'm never signing any debt again - car/house/whatever. Fuck them. They can take their serfdom and shove it up their ass.