Guest Post: Obama's Re-Fi Plan: The Perfection Of Debt-Serfdom

Tyler Durden's picture

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:

Got A Hundred Bucks? Buy A Home (Or Virtually Anything Else) Using 2,000x Non Recourse Leverage (Zero Hedge)

On the Administration’s Latest Potemkin Help Struggling Homeowners Plan (Naked Capitalism)

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RacerX's picture

wow, this sounds like a GREAT plan!  (if you're a banker)

and don't forget about state & local govt's--that get much of their tax revenue from "home property values". They're key-stakeholders in this game too!

The King is dead! Long live the King!

trav7777's picture

bbbut...Oblama was on LENO.

I guess he hadn't had some adulation lately and was desperate

malikai's picture

Leno? In a just world he'd have been on COPS.

redpill's picture

It's a full banker buffet alright.

1) Resets the mortgage so people wind up paying way more in the long run (described here:


2) Increases homeowner cash flow in the short run, therefore lowering chances of default.


3) Gives the banks a brand spankin new set of documents including Deed of Trust and Note, so all these pesky fraudclosure issues go away.


4) Giveaway to the transaction folks whether it be banks or brokers, more churn fees.

AldousHuxley's picture

Folks, YOU WILL NEVER OWN A HOME outright.


Government is the ultimate owner. That's why you pay the property tax. 1% every year at least. Same as wealth/asset tax.


Any guarantees that property tax won't go up next 30 years? Hah.

redpill's picture

There are a few counties in the US where there are little or no property tax, but as I recall most of them are not places you'd actually want to live!

AldousHuxley's picture

some may even give you free land....homestead act.


caveat: raising a family 200 miles from any civilization may not be worth the free crappy land.


market is sort of free and working, so free stuff means market value is zero to negative.


over the 30 years of home "ownership" assuming inflation = property value growth:


MORTGAGE $300,000


PROPERTY TAX $90,000 (@1%)

SECRET: The real wealthy owners of America don't get mortgages.


pan-the-ist's picture

This isn't really about debt serfdom, it's about haircuts on MBS's that are still in Joe Six-Packs retirement portfolio.  Haircuts there make everyones savings go nuclear and the game is over.

AldousHuxley's picture

you mean the avg. balance of $50k in boomer's 401k "retirement portfolio"?

most Joe Six-Packs have maybe six dollars in his portfolio.


It is actually about not making foreigner governments mad. US government bond is pretty much all home mortgages repackaged anyway. US told China that we will go invade oil rich countries and give them oil discounts if they hold on to Fannie and Freddie.

Council of Economic Terrorists's picture

It's all in the name.  Root words of mort gage = death pledge. 

AldousHuxley's picture

I like it...


Morgue-gage: aka. "debt till you die suckers!" -world banksters.

franzpick's picture

Tax strikes are probably punishable with 30 days in the electric chair, so maybe it's time for a 'homeowner' de-occupy movement of strategic default, or the increasingly popular buy (something at half price) and 'walk' for those still in position to do that.

It's just a matter of time before the homeowner populace sees through the continual Case-Shiller understatement of home price declines and overestimate of recent sale values (by excluding distressed sales and by monthly price averaging).

Mortgagors of the World Disburse will be my sign at the desert cities civic center camp-in this weekend.  

Fox Moulder's picture

I haven't read the fine print, but it also probably turns a non-recourse morgage into a recourse one. I.e. if you sign you can't walk away from the debt.

legal eagle's picture

In Nevada, it may do the opposite.  Last year the legislature passed a bill making Nevada like California, where banks cannot seek deficiency judgments.  Under the old rule, they could.  So, lets say you have a 2005 mortgage and want to walk away from the house.  Well, it may be better to go ahead and refinance, then the new law would apply, presumably, and when you walk away the bank cannot seek deficiency.  So, in Nevada this might turn a recourse debt into a non-recourse debt.  That is, unless there is a special provision......


Bollixed's picture

The problem lies in the Feds ability to tax the forgiven debt as income.

They have you coming and going. Somebody has to pay for Barney Franks pension.

Goner's picture

This is not an issue since the Mortgage Forgiveness Debt Relief Act of 2007. I dont know if the new plan impacts this at all but I doubt it.

1.  Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.,,id=205004,00.html

legal eagle's picture

Yes, along with that war criminal GW Bush, who should have been hanged along with Saddam.  Come to think of it, GW killed MANY more people than Saddam ever did.

Obummer just continued the same despotic policies.

DCFusor's picture

"GW killed MANY more people than Saddam ever did"


Forgetting the Iran-Iraq war, are we?

malikai's picture

We did give the Iraqis and Iranians the weapons to fight that war - and help us test them.

AldousHuxley's picture

some of them may have been defective weapons sold for full price.


Sort of like USAID genetically modified crops  that was rejected by EU health regulators got "donated" to African countries. But US did take full credit for par value...

"US donates $$$ every year to poor African countries!!! so when US comes after your oil, gold, and other wealth, US will be preferred over China"

Blano's picture

And the Kurds after Gulf War 1.

AldousHuxley's picture

obama....still kissing up to wall st. with bailouts.


folks, remember, refinancing just eases cashflow requirements, but in the long run it is more money for the banks.

Also, holding up inflated housing prices = holding up taxable assets for your governmint --> more taxes.


In california, people are selling as prop 13 tax limit eventually catches up thus taxes become bigger liabilities in terms of total cost while home valuations are falling.


Home is not a good investment unless valuation growth exceed that of inflation.

Folks, even if you are not losing money on a home, when inflation is 4-5%, you are losing 4-5%.

redpill's picture

Prop 13 only applies at the maximum assessed value the property ever had.  If your property taxes in California go down because of market conditions, they can re-hike them again by any amount up to the former peak before they are restrained by the Prop 13 1% increase limit.

The way things are going, the only reason to own a home will be as an income property (which is quite doable in the market today given so many people are going back to renting).

malikai's picture

Or when M1 is cruzing along at 30%, M2 at what 10-15%, what's that mean if your home is worth say 75% (lucky!) of what it was three years ago?

AldousHuxley's picture

That it is a depreciating asset just like any other consumption when you compare "growth" vs inflation.


Fed is inflating to discourage you from walk away from your mortage and punishing banksters for frivolous due diligence and risk management by making you think you are not losing money because home values are "stable" whereas inflation is showing up everywhere else except in your wage.

Same bs they are pulling with stocks and QE.


Your home value doubled? well in next few years everything else except your home will double in price.


Except banksters fooled you into spending more on a bigger house = more maintenance fees, more taxes, more insurance, etc.




Troll Magnet's picture

Will my iPad double in value?  (Sorry.  Couldn't resist)

malikai's picture

How much gold and silver is in it?

Silverdes's picture

If it doesn't, you can always just eat it!

AldousHuxley's picture

iPad will depreciate faster than gadahffi's portfolio managed by Goldman Sachs unless you got one with gold plating.





johnQpublic's picture

as long as your home can be siezed for non-payment of taxes, you own nothing


if it can be taken, you dont own it

all one is ever doing is renting a home


you only truly own what you can carry on your back

your right to drive can be taken on a whim, putting you on foot or worse

rule by force, hidden in plain sight

refi yourself into bondage


do you suppose alcoholism is up in the US these days?

SwimmininNawlins's picture

I know alcoholism is up in "my" house these days.

JB's picture

I can't afford to be an alcoholic any more... :(

Troll Magnet's picture

weed consumption is WAY up in my home.  come to think of it, it's always been way up there.  good times.

Strider52's picture

Most people can't afford to pay attention, except to who got kicked off Dancing With Stupid People.

Libertarians for Prosperity's picture



That's just more libertarian nonsense.  You guys are FREAKS!

If you want to take this to such stupid extremes, YOU can be seized.  Everything can be seized.

You're just trying to romanticize the image of a man roaming the plains with nothing but his gold and his guns, trying to flee the supposed "slavery of serfdom" - i.e. the modern world.  Dukes of Hazard meets Gunsmoke with undertones of Tarzan



Hook Line and Sphincter's picture

Bad job Lib! Trying to discredit all the preceeding statements by associating hyperbole with reality as a whole doesn't do the trick. Try again would you? You're on to something, state it in a logically balanced way next time. 

FeetOnTheGround's picture

"Libertarian nonsense?"  Being as individually free as possible is nonsense?

BTW, you CAN be seized!! Ever try not paying child support (or any other court-ordered debt)?? Have you recently tried violating a restraining order?

Maybe you can name a few assets that CAN NOT be seized? Because most everything I can think of CAN easily be seized (of course, right after the legal paperwork has been duly filed, stamped and approved). Does 'drug asset forfeiture' count? How about failing to pay your property taxes - do you think the city/town/state is going to send you a bouquet of roses for not paying up?  Get enough traffic tickets and your driver's license will likely be seized right along with your car. Sell raw milk, and your milk, cash and property will be seized.  .gov can seize entire country's bank accounts!

I guess Libertarians could be considered 'FREAKS.' If by that you mean they are currently a minority, with viewpoints greatly differing from 'mainstream' persons when it comes to what it really means to be free.

Funny, but I don't see much romanticizing going on here - unless you mean banks (who stand to lose a great deal) snuggling up to whomever they think will best help them protect THEIR assets at every turn.

legal eagle's picture

That is why people of means should consult with an asset protection attorney.  The government cannot seize what you do not own.

I create asset protection trusts, both domestic and abroad, to hold family's nest egg so future creditors, including the government, cannot get to those assets.

If done correctly, it is all perfectly legal.  11 states have statutes that allow asset protection trusts.  I prefer domestic entities over foreign entities, but that is a long story as to why.

I had a doctor come into my office who had saved $2M cash over his career, he was now retired and in his 80s.  He wanted to protect that cash so it would go to the next generation and I explained he could use a Nevada asset protection trust to do just that - since he had no creditors chasing him.  He said he would think about it over the weekend.  Unfortunately, Saturday he was driving down the road and hit a pedestrian.  He came into my office Monday panicked saying he wanted to go ahead with the trust.  I said, so sorry Charlie, too late.  Once you have creditors including potential judgment creditors chasing you then you cannot fund such a trust.  It is obviously an American story because in the end we negotiated with the pedestrian to take just the insurance money and the we were able to go forward with the trust.  I love happy endings.




Troll Magnet's picture

legal eagle,

if one wants to contact you personally to discuss establishing an irrevocable trust for domestic and foreign assets, how would he do that? 

legal eagle's picture

Sorry buddy, do not give out my professional details here.

Sufficed to say, if you search lawyers in Nevada, or Alaska, the two most favorable jurisdictions for asset protection trusts, you will find several.  There are a few websites for Nevada lawyers that explain everything, including one by Jeffrey Burr and one by Steven Oshins.  They have nice detailed websites.

AldousHuxley's picture

rememeber, government can always change the laws/rules.


How about buy a gold coins and just hand it over? no portfolio to manage, no taxes, and nobody will be aware of the change of ownership?

Chupacabra's picture

Why is he a "FREAK" for stating a fact?  If you don't pay your property taxes, the government can and will seize and sell your home to satisfy the liability.  The government can also raise property taxes, in essentially an arbitrary and unchecked fashion, if they so choose.  If you don't pay, men with guns come to remove you from "your" property.  This is fairly straightforward, yet it seems to upset you.

DaveyJones's picture

I always use television shows for political analogy

NumNutt's picture

You are correct in this line of thinking, that is why I have opted to move onto my boat, all the comforts of a home, I own outright, and no property taxes. Win win!

lemonobrien's picture

you have to pay to doc it.

NumNutt's picture

Total years slip fee is less then half of one months mortgage payment I was making on my house. Oh and when I get sick of winter I go south with everything. Plus I can take my entire 'home' and go on minnie vacations on the weekends. Don't think I will ever own another house again.

saiybat's picture

They make it pretty clear in China when you buy a home there you buy a 70 year lease and chi-com can still take it from you at any time for any reason.

AldousHuxley's picture

I thought it was 100 years. ie. Hong Kong leased to British Empire. China got it back syou Chinese are long term thinkers versus shortterm for Europeans and even shorter for Americans.


Regardless, when you hear that in China you never OWN a home/land but LEASE from the government may initially blame COMMUNISM. But in US it is the same game. 30 year mortgage is a LEASE TO OWN to see if you are a rich enough citizen. Then if you qualify you get to LEASE indefinitely for only 1% a year while YOU pay the upkeep, YOU pay the utilities, YOU pay the maintenance.....good deal for the government.



DormRoom's picture

actually, it is a good plan.  But higher food & energy cost erode most saving gains from debt refinancing at lower interest rates.  This is a fatal flaw to the Fed ZIRP plan.  It lowers the interest rates, so more people can deleverage faster, but CPI inflation, from commodity speculation, due to cheap lending to hedgefunds, erodes its effectiveness.


Bernanke looks @ the Japanese ZIRP playbook as a guide, but the Yen isn't the world reserve currency, so US ZIRP has huge limitations, unless CME hikes margins, and unwinds leverage.