Posted on 09/13/2009 7:55:00 PM PDT by HangnJudge
Remember, the values at which subprime mortgage bonds were trading at reflected "irrational fear" and "unreasonable expectations of default."
More than a year later, it is clear: There was no panic; this was a JUSTIFIED level of trading and reflects the ugly reality - the investors in those bonds will NEVER get their money back.
They were swindled, to be blunt. "AA" bonds trading at 4 cents and "AAA" at 28? Remember folks, "AAA" credits are supposed to have a probability of default roughly equivalent to that of the Sun colliding with the earth.
There is not now and never was a "liquidity" problem. The problem is, has been, and continues to be a bankruptcy problem. Individuals, corporations and even governments are in fact insolvent. Most banks are and were insolvent.
Governments around the Western World have refused to do what the law demands, at least in the US: Recognize bankruptcies and resolve them. The law in the United States does not permit such hiding of losses, at least in theory, among the banking sector. "Prompt Corrective Action" demands that delinquencies be recognized and corrective actions mandated prior to insolvency occurring.
This was not done, and now we have a massive cover-up engaged in by The Fed, by Congress and by The Executive, pouring trillions of dollars of "new credit" into a black hole in a desperate attempt to avoid recognition of that which I and a handful of others outlined and proved back in 2007: these institutions are in fact bankrupt, investors were swindled, and tens of thousands of people in the "industry" should be sitting behind bars doing hard time for fraud.
(Excerpt) Read more at market-ticker.org ...
We have been given a gift - a six month (up to now) to couple-of-year (maybe) time frame in which to recognize the truth, break up these behemoth organizations, force the bad debt into the open, default it, make depositors whole and in doing so place our economy on a trajectory where debt-to-gdp will shrink to a sustainable level.
If we fail to do so before the rope runs out - and it will - our economy will collapse. The Federal Government will be forced to contract spending to what it can raise via taxes in the current economic climate - about half of what it spends now. Given our budget and where we spend money, this means a near-complete repudiation of Social Security and Medicare, a 50% or more cut to the military budget, and an elimination of all other federal programs. Unemployment will rocket to north of 25%. Our "just in time" economy will break down and there will be widespread, perhaps even critical, shortages of necessities - food and fuel.
To those who think this can't happen: it can. It has before to other nations, including Argentina.
To those who think that admitting to the losses and taking our medicine can be avoided forever: it can't. Exponential growth cannot be maintained in a finite system indefinitely. That is a mathematical impossibility.
To those who think that "incremental changes" will fix this: they won't. Never mind that all the "incremental changes" we've made thus far are in fact going the wrong way - toward more indebtedness, not less.
As time goes on we see that more and more of the so-called "irrational" valuations that the market placed on these securities more than a year ago were in fact conservative. The FHA now is reporting close to 8% of all the loans it guarantees are either in default or foreclosure; that number would be dramatically higher were it not for the insane step-up in issuance over the last year. In essence the FHA is trying to paper over its own insolvency by madly issuing more and more loans, as those can be claimed "current" for a short while - until they default.
"Desktop Underwriting", that is, the FHA's computer-based loan authorization system, is reportedly accepting loans with a 64% debt-to-income ratio. This is blatantly beyond safe and sound limits as the borrower is essentially assured to have a negative free cash flow after paying income taxes. (The maximum SAFE DTI, established over more than 50 years of practice, is 36%.) This purchaser funded a near-$300,000 house with $25,000 in annual income. Yes, that loan received formal "underwriting approval."
The fraud that used to be "stated income" in housing is still going on, now with the explicit blessing of the Federal Government's FHA program.
Welcome to the new boss, same as the old boss, and they both called 1600 Pennsylvania Avenue home.
If we don't stop this insanity before the market forces it on us, and it will......
I recently began subscribing to this guy’s youtube channel. I decided very quickly that he knows what he is talking about. And I’m scared.
I’ve been reading his articles for some time.
He does know what’s going on.
But he’s really naive if he believes that those in the position to make the changes he suggests really have it as their goal to fix the economy.
What is happening is being perpetrated deliberately. Economic destruction, not prosperity, is their goal.
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Obama Says A Baby Is A Punishment
Obama: “If they make a mistake, I don’t want them punished with a baby.”
With permanent dependency of the Sheeple to the state
You do realize that what is happening has beginnings that can be traced back to the reagan administration...right??
Bump!
Denninger again hits the bullseye.
Garn-St Germain?
Possible.
I think maybe reagan and everyone else was too eager to repair the shattered economy. I know, hindsight is 20-20. We were all grateful for his efforts at the time. But he set a trend that grew more extreme in later administrations. I now believe the best way to handle the economy is TO KEEP OUR STUPID HANDS OFF IT. I don’t think a 4 year term is long enough for a president to really do anything constructive with the economy. It takes longer than that to realize the true effects of your tinkering.
It appears to me that the last 8 years, and maybe more, we went a little too far with some of the de-regulation...or at least applied the concept in a stupid way.
...Do you now understand, banks have not put those derivatives on their books - but come Sept. 30th 2009 - due to new banking standards - derivatives need to be put on the books and when that happens - the banking industry will most likely come crashing down.
Watch out for 9/31/09
when the worthless derivative market equities
are declared by banks,
the Sh.t likely will really hit the fan
Garn-St Germain was a bill that deregulated the S&Ls and ended up opening the door to widespread fraud. It was one of a series of innovations that dismantled the Glass-Steagall act over a series of years and very likely is one of the roots of the current financial crisis.
http://en.wikipedia.org/wiki/Garn-St._Germain_Depository_Institutions_Act
The bill, whose full title was “An Act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans,” was a Reagan Administration initiative.
“Watch out for 9/31/09”
I’m predicting that that day won’t show up. ;-)
Actually the bill was the brainchild of Ferdie St Germain, a Rhode Island Democrat as sharp as he was crooked. It’s the fault of the Reagan people that they didn’t closely examine his bill.
Thirty days hath September....
Hmmm...
must fact check dates
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