Stop forclosure 58 AP.
(photo credit: AP)
We have the dubious honor of living in times that are not merely “interesting,”
as the Chinese curse has it, or even “dramatic,” as suggested here last week,
but truly historic – and not in the positive sense of that term. So weird, so
utterly extraordinary is the state of the global economy, that there can be no
doubt that some major upheavals are imminent.
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This is not surprising; the
coming shocks are a continuation of the process that began in 2000-2002 and
continued, after an artificial, government-intervention-induced hiatus of
pseudo-prosperity, in 2007-2009. The last 20 months have seen another, even more
artificial and even more overtly government-generated hiatus, but this one has
not generated prosperity for most people, or even a mere job for many. It, too,
will end in an almighty crash that, although its timing is indeterminate, will
most assuredly be more sever in every respect than the previous one, let alone
the one that got this century off to such a jolly start.
is reinforced daily by considering the vast and steadily widening gulf between
la-la land, where most of the citizenry of the “developed economies” dwell, and
the harsh reality that surrounds them. A few simple examples from the last few
days illustrate the point:
• In Paris, three million people took to the streets
to protest at – and try to thwart – the very belated attempt of their government
to extract the French people from their delusionary existence. Specifically,
they were defending their “right” to: a) retire at 62, or earlier in many cases;
b) receive a full and very generous pension; c) enjoy a longer life, as modern
medicine extends life expectancy; d) utilize all the said benefits of modern
medicine via a universal and efficient health service. Who will pay for
all this and how, when the ratio of workers to pensioners is set to erode for
decades to come, is of no concern to these demonstrators. Aux barricades!
entire financial world is convinced that the US Federal Reserve will announce a
second round of “quantitative easing” (universally referred to as QE2) at its
next meeting on November 3. This impending flood of liquidity has driven the
dollar steadily lower and virtually all financial assets steadily higher.
However, a large group of economists, including even those from ultra-mainstream
institutions such as Bank of America and JP Morgan, have written analyses that
convincingly rubbish the idea that QE2 could achieve its proclaimed goal of
stimulating the American economy.
This theme has been further developed
in a detailed research paper from the St Louis Fed – one of at least four
regional Federal Reserve banks (the others are Philadelphia, Dallas and Atlanta)
that have declared their opposition to Fed Chairman Fred Bernanke’s ultra-loose
monetary policy. The main problem is that while the Fed can pump endless amounts
of money into the economy by buying Treasury bonds, the banks that receive this
money are not interested in lending it out and will simply redeposit it at the
Fed, so that nothing is achieved.
Mention of banks and lending brings us
back to square one of the original crisis: namely, the mortgage/subprime
disaster. Hard to believe, maybe, but mortgages have returned to center stage
via the exploding scandal termed (by the Zero Hedge blog) “foreclosure-gate.”
This can be made as complex as you like, but it’s actually extremely
When the bank gives you a mortgage loan it takes a lien on your
house. If you don’t pay, then the bank forecloses on the loan, throws you out of
the house and takes possession – on the basis of the terms of the mortgage
loan. But if the bank didn’t do its paperwork properly – whether because
it was stupid, inefficient or so snowed under from shoveling out masses of loans
during the boom that it just didn’t get round to it – then it has no legal claim
to the house. You default on the loan, but the bank doesn’t get the
If it was just you, you’d be very lucky. But suppose it was
tens of thousands of loans, from hundreds of banks, all across the country? We
now know for certain that that is the case: that this is a mega-screw-up within
the overall mortgage crisis, containing all the old favorites: greed, stupidity,
with a fair smattering of criminality and corruption thrown in.
causing the entire mortgage business to seize up. No foreclosures (hooray
– if you are a borrower). No sanction on default (hooray – if you are an
underwater borrower). No more lending, certainly not in the mortgage
area. No forced sales, no cheap houses and, pretty soon, no house sales of any
sort, because no one knows what the real price of anything is, and anyway, the
buyers can’t get mortgages (probably no hoorays, except from North Korea and
It is conceivable, just barely possible, that there is a
connection between the rapidly developing foreclosure-gate scandal and that the
banking sector has not participated in any way in the surge in the stock market
over the last two months. On Wednesday, when virtually every financial asset in
the world rose in price, banking stocks fell.
But, as Michelle Meyer of
Bank of America pointed out in her latest research note on the subject, there is
a “heightened risk of a more dismal scenario. If negative momentum in the
housing market kicks in, and feeds into the banking system and broader economy,
it will be hard to fight.”
Yes, indeed... but tell it not in la-la land.[email protected]