How America's Middle Class, And Future Pensioners, Bailed Out A Generation Of Overzealous Homebuyers

Tyler Durden's picture

In the current Bernanke-Obama-Keynes toxic triangle (defined previously here) economy, blink too long and you will miss the latest bailout.

While 4 years ago, it was America's M.A.D.-hostage taxpaying middle class that had no choice but to fund the trillions in direct Fed cash handouts and guarantees to bail out the banks, in the process saving and preserving the trillions in wealth for America's uber wealthy (the "1%") class, ever since then it has been the government's turn to rescue the country's lower and lower-middle classes (the "47%"), who, with no gun to their heads, decided to splurge during the height of the housing bubble (insurmountable mortgage payments and $0 down notwithstanding) and buy that aspirational McMansion that would make them so much more appealing in the eyes of the next door neighbor (who too could never afford their house in the first place). This has happened courtesy of a progressively more pervasive mortgage forgiveness plan, which has seen the total amount of debt funding a given home purchase shrink little by little each day.

However, since there is no free lunch anywhere, certainly not when a bank's balance sheet is being impaired, like in 2008, someone is once again on the hook for this latest bailout. That someone, not surprisingly, is again America's middle class that lived within its means, that saved money while others splurged, and even put cash away for retirement, handing it over to various Pension investment vehicles.

As the FT explains today, it is now assorted pension funds, or specifically the people whose money is invested in said funds, that will have to "absorb losses on their mortgage bonds holdings" as a result of the ongoing settlements, largely politically driven, to afford the lower classes a 20%, 30% or more forgiveness on the total mortgage. Which naturally will do nothing but keep said irresponsible person in the home for a few months, until they redefault again and again, because it was never a question of how much equity one has in a given home. Instead, it was always a question of disposable income to pay mortgages and other discretionary items: income which is now long gone.

From the FT:

Investors in US mortgage securities have been forced to absorb large writedowns in response to a deal between leading financial groups and government agencies over the “robosigning” scandal.


Mortgage bond investors and US lawmakers had feared such an outcome earlier this year, after reports that a deal was near to resolve accusations that banks mistreated homeowners and wrongfully certified legal documents used to evict defaulted borrowers.


The banks – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial – agreed to forgive billions of dollars worth of distressed borrowers’ mortgage principal in exchange for waivers from potential liability. On Wednesday, BofA said that 60 per cent of the $4.75bn in first-lien mortgage principal it has thus far agreed to forgive would come from non-government guaranteed loans that were packaged into bonds and sold to investors. Of JPMorgan’s $3bn in forgiven mortgage debt, slightly less than half has come from investors’ holdings, a person familiar with the matter said.

How generous of the banks: to give out handouts to servicing clients, scoring the administration numerous Brownie points (the same administration that bailed said banks out) with losses that will have to be footed not by the banks, but by pension funds. The result - less pensions for those who had saved up enough money to be able to afford such an investment:

Earlier this year, some US senators worried that pension funds would have to absorb losses on their mortgage bond holdings as a result of a settlement meant to punish banks and aid troubled borrowers.


Obama administration officials tried to quell those concerns, first arguing that bond investors would not be forced to shoulder writedowns, then claiming that the “vast majority” of writedowns would occur on bank-owned loans. “Many of us expected a settlement to hold servicers responsible for their misconduct; not a bank bailout settling with other people’s money,” the Association of Mortgage Investors said.

Turns out Obama lied, and probably not for the first time.

And before the indignant reactions surge that this is in some way an ethical condemnation of the poor (or the rich, although we are far less concerned with that accusation), it is not: people, regardless of social status, poor, middle-class, wealthy, will act according to their motivations first and foremost, which are primarily driven around greed, and the various other deadly sins. If given the option to upgrade one's standard of living, and told to not worry about much else, everyone would take advantage. Obviously, the hangover always comes, but that never stopped anyone from drinking the night before.

The problem arises when none other than the government, which is the worst, most corrupt, most conflicted arbiter and enforcer of human behavior, is put in the position of determining how to encourage mass social behavior for the future: this is central planning at its absolute worst.

What is certain, is that by encouraging bailouts, for banks, for billionaires, for deadbeats, for corporations, for anyone who should have engaged in prudent risk management but did not, by encouraging behavior that is beneficial to the individual but destructive to the whole due to the government's own policies, what the government does achieve is enmesh an ever increasing majority of the population - not only in the US, but the entire world - into a blanket of codependence. It doesn't matter if one has led a life of fiscal prudence, or reckless monetary abandon - in the end everyone becomes codependent on everyone else, and everyone is on the hook for the government's infinite goodwill, not to mention monetary injections (which only come from diluting the money in circulation, not from creating new wealth: the Fed's printer has never created one penny of wealth - it merely dilutes it). The only problem with this utopia is that as Maggie Thatcher explained so well many years ago, one day, "other people" run out of money. All money.

At that point the music ends.

Which is why eat, drink and be merry: the government is engaging in a serial bailout of everyone, reckless behavior be damned: there is only reward, no risk, or so the central planners in various government offices: from the Fed, to the Treasury, to Congress, to the Senate and certainly to the White House, believe.

One day this will inevitably end, most likely in a series of mushroom clouds. Hopefully by then it will be "some other generation" picking up the pieces for the current, unimaginably selfish one.

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Godisanhftbot's picture

 1/2 the Country deadbeat scum, the other half without the balls to tell them to rot in hell.

= 100% farkage.


Alhazred's picture

If we had a gold standard and ended the fed, the theft in the name of the deadbeats would have to be more open.


The more open the easier it is demonized and opposed.

Sign this help create a stir help end the fed

The Gooch's picture

Great fucking petition...

"Go read some books then come back to sign it."

I am guessing the author of this "petition" was smoking herb and eating EBT twinkies in mom's basement.

Larry Dallas's picture

A@ the Gooch.

This made me snarf out my coffee. Very funny!

Dr. Sandi's picture

Buy and hold real silver and gold.

And don't put it in a watercraft.

15% appreciation over the past decade is better than the pension funds are doing. So why aren't more of us getting the shiny.

If you GET IT, you'll GET THEM.

mrktwtch2's picture

tell us something we dont know

CrashisOptimistic's picture

Here's something you don't know.  

Want to know why Apple's getting smacked?

Do a search for "goopad".

Rikky's picture

Ainol (largest chinese tablet manufacturer) is also creating products at 60%+ cheaper than the IPad with pretty much all the same features except retina display.  do a search on Novo Flame, Hero, Hero II and the closest competitor Captain.  there will always be a crowd of dopes who'll pay 250% more because they want the cool factor that is Apple, but the rest of the world looking for cost value will have no choice but to buy an Android based tablet as the justification for spending literally hundreds more for the same device will be too compelling.

Jonas Parker's picture

"EVERYTHING FOR EVERYBODY (and a little something for me)!"

El Viejo's picture

I've often wondered about the things people wish for. In the end we may all get what we really, really, reeeeally want: Silver and Gold. A new house or car or wife or genetic offspring. Some seek power or legitemacy or land or revenge. Some even seek worship. Some just want to be rescued.

AldousHuxley's picture

people want what they don't have


human nature.



Dr. Sandi's picture


people want what they don't have

Maybe so, but I still don't want Herpes.

Sometimes you have to prioritize. Get a mortgage, get financial herpes. That seems to be the current message.

And apparently granny's pension fund will pay for both the mortgage and the TARP brand herpes cream.

Dealer's picture

No risk of that

BattlegroundEurope2011's picture


Thats my House in that photo.













I wish ;)

Alhazred's picture

I was going to say...

I mean, I don't remember renting you a room in my house.

hooligan2009's picture


sickofthepunx's picture

blaming a debt slave for borrowing readily available money for next to nothing is like blaming an alcoholic left in a room full of booze for drinking.


this false equivilancy, when it's the banks that hold the purse strings, is just more supply side libertarian bullshit 

Urban Redneck's picture

Sounds simple- don't give any booze to the alcoholics...  The problem is that the state is the entity providing the booze to the alcoholics, and the alcoholics control the ballot box, and by extension the state, SO THE ALCOHOLICS ARE ENTIRELY AT FAULT.

The only solution to let the patient expire, or put the fucker out of his misery before he harms anyone else.

NooooB's picture

It's more insideous than that! Even in this article that pretends to express appropriate anger there is an awful lot of painting over. Does no one remember the barrage of commercials and corporate news propaganda oushing people to buy inflated priced homes? George W Bush went on tv to express his concern that not EVERYBODY would get themselves into a home as soon as possible for god sake! It's just not honest to portray homebuyers as just being greedy. They were- but there was more to it than that.

I sat in a mortgage brokers office as he implied ways that I could fudge my income.. I am o.k. with metaphor and my mind went back to Dracula. If you are in a room with a guy staring at your neck salivating, and he starts pretending to be your friend and trying to get you to relax- RUN!!! Has the rest of america never learned this?! I realized I was being groomed for a screwing and I got out of there!

Acting like it's as simple as "home buyers were all greedy" is just as bad as blindly accepting the bailouts. In my experience there were people trying to get into homes that were rapidly being priced out, and shady investors working the system in paralell. Fliping houses as fast as they could all the way up.  Banks and government in collusion to fan the flames like a pimp/rocker party trashing the hotel room. Burn mothafuka burn! These actions now- pushing the used condoms, overflowing ashtrays, and spent cocaine bindles off on the pension funds and the rest of us through the FED. Is just the smearing of shit on the walls to finish the job.

Again, Where is the outrage?!!

Urban Redneck's picture

It's a crooked system with myriad perverse incentives for all sorts of participants, but throwing more money at it in no way "fixes" it.  It needs to collapse and be rebuilt, hopefully in a rational fashion.


Who is the largest owner of toxic FHA paper?  The Federal Reserve.  They've gone from asking from for trillions OF TAXPAYER DOLLARS to bail out Jamie Dimon & Lloyd Blankfein, to asking for trillions OF TAXPAYERDOLLARS to bailout BEN BERNANKE.


The situation is making a farce of Greek Comedy.

Dr. Sandi's picture

Nice to blame the Alkies. But the real bastards here are the bootlegger banks, not the drunken sots who bought their product.

Liquid Courage's picture

Borrowing readily available money is like Lite Beer for the debt slaves ... the ability to triple-A rate and then pass the ticking parcel along to unknowing suckers via the voodoo art of Securitization is like hallucinogenic Tequila for the 1%. And who makes that legal and how is it in any way Libertarian? I'd say any form of fraud or theft violates the Non-Aggression Principle and is thus Anti-Libertarian by definition.

surf0766's picture

We bailed out the baby boomers. Again and Again

williambanzai7's picture

Don't worry, there's plenty of boomers getting screwed by the same bailout contraption.

Just another minor observation. The stupid assed boomer CEOs running most of the banks could not have done it on their own. They hadnt the slightest clue how all of the financial wizardry designed by people considerably younger than them, worked. This became part of the didnt know nuttin defense that has worked so efficaciously for people like Parsons, Rubin, Fuld etc.

The end result is the same. Everyone else gets fucked.

Dr. Sandi's picture

Boomers are morons. And so are their kids.

May we have the next epithet please.

LMAOLORI's picture



For that image to be complete it's needs obama's face on it as for Wal Mart they are getting their money's worth

Wal-Mart heir gives $300,000 to Obama super PAC


williambanzai7's picture

I wonder how much the rest of the Walmart clan gave Romney, as if it matters anyhow.

Their particular role is making sure the little people cannot engage in a viable mom and pop retail enterprise.

LMAOLORI's picture



Romney isn't the president if he was we would be talking about him. Hillary Clinton sat on WalMart's board and there is more to WalMart's decisions then meets the eye.

Walmart Targets Unhappy Bank Customers With New Prepaid Card

“The Durbin Amendment to the Dodd-Frank Act sets prices on interchange fees. Wal-Mart avoids these price controls because its new product is not called a debit or cash card.”

So Walmart has found a way to evade a law that Congress passed. Surprise, suprise, suprise! That’s the name of the game. Congress acts, people evade and contributions make everything OK. I’m thinking of all the waivers granted right away from the requirements of Obamacare.

I can’t say I’m a fan of Walmart for a number of reasons not the least of which is all the taxpayer subsidy that they get from WIC and food stamps since they have a lion’s share of that market. Walmart makes their mark-up on those products."

Dr. Sandi's picture

I'll expose this secret about Wal-Mart for the world to chew on.

Wal-Mart is in business to make as much money for the Walton Klan as can be made without any of them being assassinated, being jailed or actually being inconvenienced in any major way.

This is, of course, totally unlike any other large corporate undertaking.

Pass it on.

Shizzmoney's picture

This is what, in gambling, we like to call a "hedge"

blunderdog's picture

     The problem arises when none other than the government, which is the worst, most corrupt, most conflicted arbiter and enforcer of human behavior, is put in the position of determining how to encourage mass social behavior for the future: this is central planning at its absolute worst.

Hindsight's always helpful when it comes time to assign blame, but the mortgage interest deduction has been around a good bit of awhile.

orangegeek's picture

For the last four years, the government has engaged in QE-X and has blown trillions (mortgaged the future) and will get little for it in the next four years.


Barry got his re-election and what comes next is going to make Barry wish he lost.


The trend is down and many corps are missing on revenue although some hit on earnings (by firing people) - companies like Walmart.   It is ugly out there and it's going to get far worse.

notadouche's picture

And if Walmart can't hit revenues in a rough economic patch then watch out below!!!  Although I'm curious to know where you got info that Walmart fired folks in the last year.  

LouisDega's picture

I dont know about you, But im just happy to be here today

                                                     Thurman Munson

Joe Davola's picture

Hey, when we meet in hell - throw me the Zero Hedge gang sign, so I'll know whom to blame for making me laugh.

goodrich4bk's picture

I don't recommend getting your panties in a twist over this issue.  Had there been no such robo-signing settlement, almost all of the losses would have been born by the pensions holding the mortgage debt.  And those losses would have been much larger but for the various government and Fed programs that have been used in the past four years to prop up housing prices and slow foreclosures.


bank guy in Brussels's picture

If not « panties in a twist »

how about

knickers in a knot


boxers in a bunch

skipjack's picture

No, the securetizing banks would end up the bagholders.  Thanks for playing, tho.

lasvegaspersona's picture

Ultimately society will screw it always has and always will. Younger folks will ultimately be able to recover and get on the inflated wages bandwagon (hopefully) but those on fixed incomes will get just what has been promised....a nominal payment that will soon be WORTHLESS!!!

This plan has 'worked' over many cycles. I suggest you opt out of the plan with gold in hand. The reasons are complicated (for why this works) but it always seems to do so. It has something to do with fiat currencies and their natural life histories.

Dr. Sandi's picture

Bang on.

(As opposed to keep on banging, which you may also do if you wish.)

Savers are always the ones who get screwed when the money blows up. It's inevitible, since they're the only ones with anything worth stealing. Pensioners are long term savers, either through their own work or through the their employer.

What has been squirrelled away through work and foresight will, at the end, be dug up by the masked racoon rape gangs.

Same as it ever was; same as it EVER was.

davidsmith's picture

Hasn't it occurred to you yet that the Democrats are trying to create a client class?  As Nancy Pelosi said, "You need us."  They're trying to create a permanent class of people who will starve to death unless Democrats control the government.  Voila!  You can talk about dictators all day long, but you will never understand them until you understand the process by which they created a client base entirely dependent on them.  That's the ultimate guarantee of their power: a client base.

Toolshed's picture

To imagine that the Democratic party has the ability to plan and execute the kind of long term strategy that would enable the scenario you describe is ludicrous. You give the politicians waaay to much credit. Both parties are composed of utterly self absorbed morons. The very best part of this past election was watching Karl Rove's best laid plans blow up in his fat stupid face. Now, there may be some truth to the theory that both parties take their orders from a higher authority, but formulate long term strategic objectives on their own? Well, nothing that has any chance of success anyway.

ForTheWorld's picture

To imagine that they don't have the ability is equally as ludicrous.

Der Wille Zur Macht's picture

"Is it my goal to create a uniform distribution of american incomes? Nah nigga, you eva seen a ma'fucking Dirac Delta Function centered about 0?" - Benevolent Ben