Guest Post: Obama's Re-Fi Plan: The Perfection Of Debt-Serfdom
Submitted by Charles Hugh Smith from Of Two Minds
Obama's Re-Fi Plan: The Perfection of Debt-Serfdom
How better to corral restive underwater debt-serfs than to herd them into accepting a new, "better" set of lifelong servitude shackles?
President Obama is taking credit for a new government plan to "save homeowners." That is of course pure propaganda to mask the plan's true goal: the perfection of debt-serfdom. The basic thrust of the plan is straightforward: encourage "underwater" homeowners whose mortgages exceed the value of their homes to re-finance at lower rates.
The stated incentive (i.e. the PR pitch) is to lower homeowners' monthly payments via lower interest rates.
This is the Federal Reserve's entire game plan in a nutshell: don't write off any debt, as that would reveal the banking sector's insolvency, but play extend-and-pretend with crushing debtloads by lowering the cost of servicing the debt.
The key purpose of this "plan" is to leave the principle owed to banks on their books at full value while ensnaring the hapless debt-serf (the "homeowner") into permanent servitude to the banks.
If the net worth of your home is a negative number, then what exactly do you own? You have the right to occupy the shelter, and you own the debt. So how is this any different from a lease? There is no equity, and no equity being built: there is a monthly payment in return for the right to occupy the dwelling.
The difference is the leaseholder can move at the end of the lease with no debt obligations. The underwater "homeowner" debt-serf is trapped by his/her mortgage into what amounts to lifetime servitude to the holders of the mortgage.
All the plan does is perfect this debt-serfdom. In a truly capitalist, transparent, free-market economy in which assets were always marked to market, then mortgages that are grossly misaligned with the market value of the house would be written down and the mortgage holders forced to book the loss.
Over-leveraged lenders, i.e. the "too big to fail" banks which dominate the U.S. mortgage market, would see their capital reduced to zero by the writedowns. They would be declared insolvent and liquidated. Their shareholders and bondholders would book losses.
But these losses are unacceptable in our crony-capitalist/cartel-capitalist Status Quo, so the "solution" to systemic insolvency is to manipulate the debt-serfs to keep paying, and thus keep the unicorn-and-pixies valuations of real estate on the banks' books at full value.
This is the same game that Japan's lenders and Central State have played for two decades, and it remains the heart of their failed policies and decaying economy. In Japan, lenders papered over their bad debts with all sorts of back-door machinations: they extended new loans to debtors so the debtors could continue to make interest payments, they created zombie accounts filled with delinquent loans that were still kept on the books at full value, they wrote new loans at near-zero rates so interest payments were lowered, and so on--the same ploys and games being played by the Federal Reserve, the Federal government's housing lenders (Fannie and Freddie) and the banks.
The propaganda machine is running at full throttle, of course, with the usual parade of toadies and lackeys trotted out to say what a great and wonderful thing this plan is for poor homeowners. But industry analyst Ken Rosen inadvertently revealed the real motivation for the plan: to keep underwater homeowners from "walking away" in so-called "strategic defaults." underwater homeowners thrown lifeline by Obama (Mercury News).
Why is strategic default anathema to the Status Quo? Because the abandoned house will eventually have to be sold on the market, and at that point its true value revealed. The mortgage holder will then be forced to book a stupendous loss, and the inflated-paper "asset" on the books vanishes.
The Big Lie here is implicit: "your house will someday come back in value, so hang in there, debt-serf." No, it won't. The bubble has popped, and the mania has left town. Housing will retrace to pre-bubble valuations circa 1996-98.
As usual, the Plan is all about managing perceptions and political theater: we're here to help the little guy, the struggling homeowner; we are in charge, we have a plan, we're competent, this will fix the housing market.
Too bad they're all lies. Perception management is not the same as actually solving the underlying problem, yet perception management is the Status Quo's response to every problem.
The perfection of debt-serfdom is now complete. First, make student loans "necessary" for the "good life" and then make that debt permanent and unbreakable. In other words, institutionalize debt-serfdom and lifelong servitude to the financial sector.
The re-fi "plan" herds potentially rebellious mortgage debt-serfs into new corrals, with the incentive of slightly lower interest rates. The lifetime of servitude to financial Overlords remains firmly in place. That's the "plan."
The Plan has other flaws as well:
On the Administration’s Latest Potemkin Help Struggling Homeowners Plan (Naked Capitalism)