The No-Pay Movement
Often also called an activist, Mr. Keiser created quite a stir a few days ago when, on an Al Jazeera program, he claimed that Greece, for the past decade, has fallen victim to the “economic terrorists” of the Wall Street banking systems and the IMF. In the interview which followed, he claimed “if the Greeks want to be protected from the IMF, then they should nationalize their banks thus establishing government owned institutions so as to revive the banking system”, while at the same time “ceasing to pay back the loans which were issued illegally” via “cooking the books” of the Greek economy by Goldman Sachs. He proposed the expulsion from the country of American banks as well as the IMF. The consequence will be “two or three years of heavy recession”, during which time Greece will be able “to rebuild its economy”, ensuring its economic independence.
Since I started covering the financial crisis a year and a half ago, I’ve been getting a lot of letters that say things like, “This all sucks. But what should we do about it? If you don’t have any answers, what’s the point?”
I don’t want to get into this too much since I have more on this coming out in my book, but I would like to point out some of the answers other people are providing to this question. One is this above plan from the hilariously blunt Max Keiser, whose “Goldman Sachs are scum” interview was one of the comedy highlights of 2009.
Keiser in an interview basically says that the debts countries like Greece owe to banks like Goldman, Sachs for loans and rate swaps are illegitimate since they were criminal deals, made with the intent to cook Greece’s books and defraud the citizens of Greece out of their tax money. He therefore proposes that Greece should simply stiff Goldman for those obligations and that, furthermore, American banks should be expelled from the country while the government temporarily nationalizes its banking system and establishes its independence from the financial services industry.
I’m not sure I know enough about what the consequences of a plan like that would be to say whether this is feasible or not. But I think Keiser’s idea does underline an important point about the situation, which is that as powerful as these Wall Street banks may seem, they are also exquisitely vulnerable. Right now virtually all of them are dependent upon the government keeping accounting standards lax enough for all of them to claim to be functional businesses. It is generally accepted that if the major banks on Wall Street were forced to mark all of their assets to market tomorrow, they would all be either insolvent or close to it.
Thus their “healthy” financial status is already illusory. So imagine what would happen if large numbers of those dubious loans on their balance sheets that they have marked down as “performing” were suddenly pushed ahead of time into the default column. What if Greece, and the Pennsylvania school system, and Jefferson County, Alabama, and the countless other municipalities and states that are wrapped up in these corrupt deals just decided to declare their debts illegitimate and back out?
I think it’s an interesting question and would like to hear what knowledgeable people in the field have to say about it. But the big picture, to me, is that these companies are almost totally dependent not only upon the continued good faith of aggrieved debtors, but upon the government recognizing the (sometimes fraudulent) loans made to those debtors as fully performing. I’m waiting for some canny politician to use those two facts as a hammer to make them all get in line. Thoughts?
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Whenever one of my less-than-enlightened friends goes on a rant about entitlement programs, I love to remind her that the biggest welfare recipients in U.S. history are the same banks who are foreclosing on her neighbors and driving declining local and state tax collections.
I don’t know enough about economics to assess this “proposal,” but the idea of Greece sticking it to Goldman Sachs and the IMF is more than mildly attractive.
Why should banks who gambled wildly and, in some cases, bet against their own investors, get propped up while the citizens who fed their account ledgers get screwed?
In her own petty, naive fashion, my friend sees her competition for dwindling resources to be African-Americans, immigrants, and what she deems “poor white trash.” What she fails to recognize is that the same class system which created a permanent underclass is busy dismantling her precious middle class.
She fears the U.S. moving toward socialism; I see it declining rapidly into feudalism.
As long as we’re printing money and using the Fed to cook the books, I told her, why don’t we bail ourselves out? By nationalizing the banks, in one fell swoop we could rid ourselves of the speculators, the raiders, the money-changers, the pay-day lenders and the thieves looting our nation’s wealth.
Since the problem grew out of the subprime housing market and the housing bubble, why not declare an immediate moratorium on foreclosures and write down everyone’s mortgage to the actual value of his or her home?
Why not use creative bookkeeping to restore the value of people’s 401Ks and public pension funds?
Hey, if we can “fund” two wars off the books at the same time as we give tax cuts to the rich, this program should be no sweat. We mortgaged our children’s futures to bail out CitiGroup, so why not the borrowers and account holders they’ve been busy robbing blind?
At the thought of not being upside down on her mortgage, my friend’s spirits perked up. All of these ideas sounded good to this midwestern, white, Republican stalwart.
It’s funny how the focus changes when we take a closer look at who the enemy really is.
Maybe we can learn something from the Greeks. After all, they’ve taught us a thing or two over the years.
“By nationalizing the banks, in one fell swoop we could rid ourselves of the speculators, the raiders, the money-changers, the pay-day lenders and the thieves looting our nation’s wealth.”
In response to another comment. See in context »Right. If Obama had done that upon taking office, we would be on our way to recovery and so many homeowners would still be in their homes.
I love the idea of not paying loans that were ILLEGAL in the writing. All the sub-prime predatory lenders would be long gone and those ill-informed blaming blacks and immigrants would finally “get it”.
Regulation and ENFORCEMENT please would clean this mess up…if only the Enforcers were unlocked. Lets go!
Hey, I’ll help build the first guillotine. How fast can you text OWTH?
In response to another comment. See in context »“Whenever one of my less-than-enlightened friends goes on a rant about entitlement programs, I love to remind her that the biggest welfare recipients in U.S. history are the same banks..”
Your friend is absent a few brain cells, obviously, as you are right on target: we are far into the neofeudalist movement, led by the banksters and company.
The crucial point, too many can’t understand or are unable to see, is the rather simple connection between the debt-financed billionaires, the massive federal debt, and deficit spending.
Peddling debt, and the continuing subsidies to those insolvent banks (i.e., Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citi and BofA) does nothing for what passes for an economy, but everything to keep those debt-financed billionaires in the gravy.
And when the financial sector comprises 78 percent or greater of the economy…..there is no economy. Period!
As Simon Johnson, from MIT and formerly the chief economist at the IMF, said recently, the top five banks compose 63 percent of the GDP — and they are insolvent!
That should give everyone pause…..
In response to another comment. See in context »Entitlement programs are the problem. Whether it be for banks or poor individuals. Because it is all underlying the same problem no matter what the reason or moral high ground, distributing wealth.
In response to another comment. See in context »Absolutely. What Jacksonian said. Where do I sign up to get this done?
In response to another comment. See in context »Jefferson County is mulling over the idea of filing for bankruptcy if they can’t get JP Morgan to seriously reduce the debt.
Most Jefferson County Commission candidates reject bankruptcy
http://blog.al.com/spotnews/2010/04/most_jefferson_county_commissi.html
“Humphryes said recently a solution to the sewer debt crisis can be reached if creditors agree to reduce the debt by $2 billion. If that doesn’t happen, and finance experts don’t believe it will, Humphryes said the county should file bankruptcy.
Not all candidates in District 3 want to negotiate with creditors.
David Alan Phillips, a business owner, said bankruptcy would give the county an opportunity to regroup and restructure. “It’s not that we wouldn’t have to pay it back, it’s that we can restructure it and actually find out what kind of debt is in there and if there were illegal shenanigans,” he said.”
————————————
I’ll guarantee you that the last thing JP Morgan wants to deal with is having a bankruptcy court peelin away all of the layers of this onion.
I sent this post around to some folks. Tyler Cowen over at Marginal Revolution responded “banks fail which hold the debt and next time around there is no borrowing…”
Mr. Bateman,
I am guessing that Mr. Cowen sent that message to you “off-line” as it is not on the linked page. The quote is not really clear as to its meaning. I think what he means is that if the outstanding loans Mr. Taibbi is suggesting were unethically obtained, if not actually illegally, then the lenders would fail and there would be no one to loan anyone any money. This would presumably have significant negative economic consequences.
I would note that these large banks have already failed own their own. They only exist now because of government bail-outs. The reason they failed on their own was because of questionable loan practices. The reason they were rescued was because they were “too big to fail”.
So this just begs the question, if Jefferson County &c declare bankruptcy and do not pay these loans, will not the Federal government just bail out these same banks again for exactly the same reasons?
In response to another comment. See in context »You’re right about the offline bit. And, you raise a good question. I can’t answer it without likely embarrassing myself at this point. I’ll dive back in to some further reading…
In response to another comment. See in context »Mr. Bateman,
It seems to me that the bigger issue is not that these complex loan instruments were issued through unethical, or even illegal, procedures. This puts too much attention on what corrupt individuals or even organization did or did not do. While that is not unimportant, it is secondary to the bigger issue which is that we have a *corrupt system*. The people who work at J.P. Morgan &c are not stupid, they can do the math and see that the loans that they are making are crooked, short-term, and unstable. Most of them would really rather be making honest loans to solvent lenders to make stable, long term profits. The problem for quite some time has been, they don’t hardly exist. Who would these solvent, stable clients be? The ones that do exist, already have all of the loans that they need.
Federal financial regulators are painfully aware of this as well. This is why they helped create the residential real estate bubble after the collapse of the “dot.com” bubble. They had hoped that the real estate bubble would support the economy until some new investment opportunities developed. Unfortunately none did and the bubble burst.
Wall Street is merely a but economic superstructure built upon an foundation of industry. As the US economy has lost its manufacturing foundation, there is less and less opportunity for honest investment in the US economy. This leaves just Ponzi schemes and piracy as ways for Wall Street to make a profit. It is like Somalia, why are there so many pirates there? It is the only game in town.
(This process of de-industrialization is not something new, it has been for over 100 years, it has just really built up steam over the last 30 years or so…you can read more below…
http://trueslant.com/level/2010/04/01/obamas-got-a-bigger-problem-now-the-whole-planet-is-unemployed/#comment-2132.)
In response to another comment. See in context »To your comment:
“Federal financial regulators are painfully aware of this as well. This is why they helped create the residential real estate bubble after the collapse of the “dot.com” bubble.”
This is what grates me about Obama and 70 of our U.S. Senators, they reappointed a man to the Federal Reserve chairmanship who had obviously either completely been asleep at the wheel (far worse than anything Exxon did via the Valdez) or was actually complicit in the building calamity.
In response to another comment. See in context »-RLee
http://therleepost.blogspot.com
While Cowens statement is certainly true, it is only valid in the context of Greece being part of the European Monetary Union. A much better alternative would be to leave the EMU and issue the Drachme 2.0. This would be like a default on outstanding debt in now foreign currency, with major banks facing a very new haircut most likely after a settlement in Paris (Paris Club). Afterwards Greece would not be able to borrow for some time, but because it is now the sovereign issuer of the currency there’s no need to borrow. Most economists don’t like to tell the public the fact, that issuing bonds to the private sector is a voluntary act by a sovereign government with a FIAT currency and a free floating exchange rate. That would be my solution for Greece. Would be messy but the Greek government would not have to give in to austerity programs, imposed by fanatical ECB and EMU economists, with the sole aim to impoverish Greek citizens for the benefit of financial markets and rating agencies.
In response to another comment. See in context »There’s plenty of banks that were not involved with this criminal behavior. They are still willing and able to lend.
We don’t need BIG banks, we just need banks. You’re confusing Harry Potter’s bank with George Bailey’s Savings and Loan…
In response to another comment. See in context »RE:What if Greece, and the Pennsylvania school system, and Jefferson County, Alabama, and the countless other municipalities and states that are wrapped up in these corrupt deals just decided to declare their debts illegitimate and back out?
As far as the states and municipalities are concerned…they can all go bankrupt…who cares
They have bled the taxpayers dry in their quest to make every public employee a lottery winner….screw them….
I have long contended that NOTHING will solve the problem of corruption and theft by the banksters until there is an organized (or spontaneous) debtors revolt. But whatever the method, there simply MUST be some method that rolls back the takeover of governments by the moneychangers.
Let me get this straight.
This guy is suggesting the Greek government, who got into substantial financial trouble all on its own and then paid Wall Street to cover it up, should take charge of their financial system, nationalize their banks, kick out any competition, and refuse any assistance from the global organization set up to help with bank crises?
If their can’t run the finances of their government, let alone do it honestly, why would they be able to run something bigger and more complicated after removing a number of check-and-balance mechanisms?
Sure, fuck Goldman, and I’d be happy to see them get penalized 10x for every dollar they made on their organized financial crime. Hell, bring on the RICO. But that money is a tiny fraction of the real problem here: Greece’s unsustainable spending and resultant giant debt load.
You’re making a number of assumptions that may or may not be correct, but should be pointed out:
- Sovereign finance is more complicated than the exotic derivatives designed by investment banks. It could be the case that a nationalized bank would be simpler.
- Greece was acting in bad faith. Who has the honesty deficiency? I hope we all know by now that the “trusted adviser” myth of the i-banks are bullshit, but why was GS shoving this crap on Greece’s books? (which is just one instance. We could look at Wisconsin school districts, Citron in Orange County, etc. etc.)
- Greece’s debt is “giant.” It seems more likely that this is inversed – Greek’s debt is, on a global scale, insignificant, while the trillions of dollars GS made up through all kinds of alchemy is the real problem.
Debt repudiation is a real solution to the problems facing Greece and should be taken seriously. The solution to getting fucked by the banks is to fuck the banks themselves, not hammer out a payment plan. Hopefully debt repudiation movements start in the United States too. It would be quite a sight to see a dump truck unloading credit card statements onto the VP’s front lawn, where Joe Biden ran a Bahamanian corporate tax haven called “Delaware”
In response to another comment. See in context »yes , why should the middle class pay for the bankers and politicians mistakes and fraud?
In response to another comment. See in context »We have no control over deficit spending.
All Americans are paying for the subprime mortgage fraud.
When the bankers and brokers were making money they didnt share it with us and now we are paying money to every investor who lost money and every bank that made money.
Citizens are responsible for the actions of their government. That’s a fundamental part of the “of, by, and for the people” deal.
We absolutely have control over deficit spending at the ballot box; it’s just that most people don’t care to use it. Greek voters were perfectly happy with deficit spending when it bought them early retirement and plenty of comfortable government jobs. US voters really don’t punish deficit spending either; Reagan and GW Bush were both reelected despite incredible deficit spending.
Voters love deficit spending until the bills come due.
In response to another comment. See in context »This would be more persuasive if you based it on some facts.
Goldman Sachs does not make trillions; their profit was about $16bn last year. This is in contrast to Greece’s $405bn of public debt. Per capita, Greece’s debt is 50% larger than the US’s debt, and it’s the highest per-capita debt in the EU.
I agree that GS, et al, spend a lot of time conning the rubes, and would be glad to see many of them in jail. But the Greek government has been living beyond its means for a long time, partly because they’ve bought off the Greek voters for a long time.
Either the Greek government knowingly used complicated instruments to hide the problem a little longer (my bet) or they’re not financially competent but did a bunch of fancy deals anyhow. Either way, there’s no reason to think they are going to be successful running more stuff when they can’t run what they’ve got.
In response to another comment. See in context »He actually said, “while the trillions of dollars GS made up through all kinds of alchemy is the real problem”. This is actually accurate, and is unrelated to profit.
In response to another comment. See in context »Why should America have to pay anything at all to the Fed?
If it is true that they create phantom “money” out of nothing, then pay them back nothing, of course.
If it is tru that they create “money” out of thin air and then demand whatever the amount is they have so created,AND they add interest, but not just ordinary interest but compound interest – if that is not fraud, fraud and more fraud, what on Earth IS?
It seems to me that everything they have, everything they think they which is probably most of the gold in the World, is most decidedly NOT their since it is stolen.
If it is true the the “money” they create is phantaom “money” which they then force the people (peons) to pay to them out of their hard work and their resources of all kinds, they have, quite simply stolen it all. Everything they have is STOLEN.
Therefore, they must hand it ALL back – everything they have is stolen by means of usury. It must all be returned to the rightful owners and the thieves must be arrested, tried, convicted and jailed – after, as Wayne Madsen suggested, being tarred and feathered and put in stocks at the Mall in Washington and outside the Houses of Parliament in London while the people throw rotten eggs and tomatoes and such like at them.
The Bank of England was stolen by deceit in 1815 by Nathaniel Rothschild. WHY have they been allowed to keep it, let alone to continue to live in England as though honored members of the community???
And why have the English been so stupid to put up with this outrage? How is it possible that a whole bank can be stolen – just like that?
We all know about the Fed and about that deceit too – it all HAS to stop.
Mr. Taibbi,
Stacy Herbert sent me here to remind you about what CHINA did last year in a similar situation
(From Sept 8 2009)
In early August, China Eastern Airlines Corp., Air China Ltd. and China Ocean Shipping (Group) Co. sent letters to six international investment banks warning that certain transactions “may be void, invalid or unenforceable,” said a person familiar with the letters.
Among the banks understood to have received such letters are Deutsche Bank AG, Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Citigroup Inc. and Morgan Stanley, according to three people familiar with the situation.
http://online.wsj.com/article/SB125234556777390497.html
If China can tell these banksters to use their derivative contracts for a prostate self-examination, then why can’t anyone else?
Hello Giuseppe Bagodonutti,
You are most certainly correct that anyone can indeed tell these banks that they will ignore their debts. The concern is that this will result in extended economic depression. If these Wall Street giants face massive loan loses, they could (again) collapse, resulting in (another) stock market melt down, causing (even further) economic chaos.
It is not a question of “can” but “should”.
In response to another comment. See in context »Why would it result in an extended depression?
It’s FAKE MONEY, even beyond the concept of Fiat Currency…
You tell these knobs to go blow a goat, and THEY need to make the fictitious accounts disappear…
What happened to that $500Million+ that JP Whorgan was told to make disappear by the SEC?
Did it destroy the system?
It certainly didn’t hurt their profits…
But, I am open to correction… so if you could enlighten me on how it would “extend the depression”, I’d appreciate it.
In response to another comment. See in context »I would like to see more of the Taibbi/Keiser tag team in some public forum. I would pony up some of my “never give to politicians fund” to see such an event. You guys take an incredibly important yet incredibly boring and abtruse subject and make it a bit more entertaining and digestible for the rest of us.
We always fear the unknown, however, Greece defaulting on Goldman Sachs is about the right size for a controlled and containable experiment. As an American citizen, I endorse the idea. Greece, feel free to stick it to one of our least loved establishments.
In response to another comment. See in context »Hello Giuseppe Bagodonutti,
1) What is fake money? All money is “fake money” in the sense that it is only as real as the government / bank issuing it. The money borrowed by the State of Alabama, the Nation of Greece, School Boards, &c was very real. They used that real money to buy real things. Roads were paved with real asphalt bought with that loaned “fake” money. School buildings were built. People were paid salaries with that money who went out and bought real things with that money. The same money that Wall Street loaned to the State of Alabama is in your own bank account. If their money is “fake”, so is yours. I do not think that you really want to follow that line of thought to its logical conclusion.
2) The current “Great Recession” was rung in with the collapse of stock values brought on by imploding banks. The fear is that if the same banks again implode with a new wave of “foreclosures”, i.e. loan defaults, that there will be a new wave of stock price loses, bringing on new rounds of lay-offs. Further, if many major banks collapse, it could freeze up credit, making surviving, solvent companies unable to obtain loans, amplifying the current economic recession.
3) We like to imagine that the Great Depression of the 1930’s was brought on by the stock market crash of 1929. However there were a whole series of “crashes” and other crises, each amplifying the other. Stock values did not bottom out until 1933, over three years after the initial crash. However there had been several “recoveries” between 1929 and 1933 with raising stock prices and other indicators of improved economic activities. The collapse of many major banks worsened the already bad situation. Mr. Hoovers attempts to “balance the budget” and trade tariffs drove the economy even lower.
None of this is to say that the “No Pay Movement” is wrong, only that it has to be thought out. On the other hand, if the economy remains bad or worsens, what might be an act of defiance might become one of economic necessity.
In response to another comment. See in context »Thanks for the reply, David…
I was going to reply with a winding diatribe, point by point, but have realized I can sum up a response to all three with one word:
CREDIT…
Banksters create the credit, and the central banks are forced to play catch-up.
The Austrian School (notably Roger Garrison) make an outstanding case in that regard.
The Penalties/Interest (the FAKE MONEY) are an added creation on top of any credit implied in the Principal (the FIAT CURRENCY).
Add the Derivatives component, which is a 3rd order creation on top of the Penalties/Interest garbage, and the whole inverted pyramid becomes more unstable.
The point is, the 2nd and 3rd orders of the credit pyramid, have no relevance on the tangible components (i.e. the sewers, infrastructure, teachers salaries, etc).
They are:
1)a speculative risk (the interest/penalty),
2)a manipulative hedge (the derivative)
Do you honestly believe that if the Banksters DON’T GO UNDER, that anything is going to change?
The cycles of Artificial Boom & Bust will return harder and faster…
Surely you can see that in your historical analysis of Crises, no?
They have fed a system of their own design, that is meant to fail due to the nature of exponential equations (Financial products) clashing with a finite resource (limits of human-exertion/energy).
So by letting them continue, they only will perpetuate the illusion, but with greater consequences on each swing…
It cannot be saved, and for the sake of everyone under their collective thumbs, the Banksters should be (figuratively) euthanized… Not constantly rescued…
Their failure will happen one way or another…
The question is whether we continue to artificially resuscitate them or not…
But one way to get the ball rolling is for the Sovereign Debtors to tell all these Creditors of Castle Greyskull to eat their contracts…
Go ahead and try to collect…
Don’t worry, a new head on the hydra of finance will pop up somewhere… and maybe the next time, it will be tamed instead of being left to run amok…
Oddly enough, judging from your other posts, I suspect we actually would find agreement overall, I just choose not to be so complacent and contemplate it too long…
It’s time for action, and the best action is to be non-compliant…
Let the incidents pile up, and see how the banksters FIX the situation.
In response to another comment. See in context »After all, THEY made this mess…
I guess if they could somehow get their debts declared illegitimate then they could walk away from them, but how could they do this?
Individuals can file bankruptcy and there are consequences but life does go on, but for a municipality to file bankruptcy the consequences are dire. A city’s very existence depends on its ability to raise money through bond issues.
Great idea!
Posted my comment here:
http://solari.com/blog/?p=6773
Create the Path Forward
April 6, 2010 at 11:04 am
Today, Matt Taibbi describes Max Keiser’s proposal that Greece should nationalize their banks, abrogate debts that were criminally originated and work through the painful adjustment of rebuilding their real economy:
The No Pay Movement
Matt invites comment on the merits of this plan.
Max’s proposal is sound. First, it moves us towards a fundamentally healthy and sound economy. Second, it is in accordance with age old financial and legal principles. If a debt is “fraudulently induced,” it can be
invalidated in whole or in part.
Look up “fraudulent inducement.” My position as the former Assistant Secretary of Housing-Federal Housing Commissioner and then as lead financial advisor to the U.S. Department of Housing and Urban Development is that the majority of the mortgages originated in the United States after 1996 were fraudulently induced.
The way to deal with criminals is to treat our contracts with them in a manner reciprocal to how they have treated their contracts with us.
Will a growing movement to abrogate contracts to institutions who have broken the law be disruptive? Yes. Will that require painful adjustments? Yes. That is the price we pay to deal with the challenges we face. This includes the fact that the banks have sold criminally originated debts to our pension funds and retirement accounts as well as allies and institutions around the world.
It is much less painful, however, than the price we will pay if we continue to operate by a double standard whereby large institutions and a small group of people are permitted to live and operate above the law. So let’s address the lawlessness in the financial sector, face the national security issues involved in using our financial markets for economic warfare and begin the transformation.
Thanks, Max. Good Idea. Thanks, Matt. Good conversation. We have options. We will create the path forward.
Catherine Austin Fitts, who has long wisely held forth on the colossal “pump-and-dump” scheme the American economy has been designed to be, says it all far more eloquently than I ever could.
Full agreement with The Keiser-man.
In response to another comment. See in context »yes Taibbi is brilliant!
I thought that greece would investigate their rogue politicians and charge them and the bankers with crimes. Then ban GS from working there.
Instead they are trying to sweep it under the rug
Iceland have already repudiated their debts. They seem to be in better shape than Ireland who are killing themselves trying to pay off their debts. Having said that, with Greece you have groups of corrupt politicos sleeping with the vampire squids to cook the books. For Greece to claim innocence is ridiculous. On the other hand repudiation, and the likihood of other deals going sour (e.g. Milan), would cleanse the stables so to speak and allow a recovery to come in the distant future. In previous histories of repudiation of debts; the nations survived. It was the bankers who went under. In the end a new set of politicos will be sent to power with the express instruction to take the bankers apart
There has been a fair amount of civil disobedience around foreclosures on personal debt and home loans, especially in my home locale of Detroit. I see a personal application that many of my friends are trying that takes pointers from Matt’s suggestion, and is both economically healthy and saves individuals from bankruptcy and the stain it leaves on a credit report.
Its called a short-sale. Here’s the deal: everyone is defaulting on their mortgages, and most people have short-sale clauses in their mortgages or banks are willing to entertain them. What it allows you to do is sell your house to whoever will buy, and the bank will consider the loan discharged. This really helps you out if you’re underwater.
Banks entertain these short-sales because if you go into default they get nothing when you declare bankruptcy except for your fucking house, which, because of their predatory lending, is worth way less than they have loaned you. So banks are becoming homeowners of shit they can’t sell. Banks don’t like being in the business of homeowning because they have to fix shit and pay real estate agents and all kinds of the nickel-and-diming they do to other people in these variable rate swap mindfucks that Matt talks about.
So, its better for them to cut their losses early and kind of put that selling onus on the homeowner. This is better for the homeowner because a little vigilance + craigslist + a few buckets of paint and some nails > bankruptcy.
Funny part is, the bank has to take a loss on that mortgage. Its not performing anymore. This is great because it gets the house back into the market at market value, with a reasonable mortgage for the new buyer that is something realistically backed. So its economically healthy because it is girding a rebuilding of the housing market at sane levels.
Will Wells Fargo go bankrupt in the process? Maybe. But then again, these new mortgages are being funded a lot by financial institutions that people trust, like Credit Unions, which by definition aren’t lumbering, insatiable gluts. So if this transition happens gradually, there could be a whiskey/oil reseperation of investment/commercial banks.
That would be cool, right? Its like Glass-Steagal, except generated by populist distrust instead of principled politicians, which are in short(er) supply nowadays.
But I’ve learned to never underestimate the gullibility of the American people. These are the folks who believe in death panels and Jack Bauer, and are willing to turn out by the millions to watch Tom Delay Dance with the Stars.
Ouch, ooowww…wow and woe…you (comments) means the Greeks are too stupid to get out from under their master’s thumbs? Get out the slave chains, ma! Gotta take notes on this…but rather, let’s get on with this Andrew Jackson show. Lotsa people thought he was too stupid to close the banks and get away with it. Oops, ouch, the hoi polloi rises its ugly head. Oh God, when will the stup-id learn not to provoke things.
Otherwise said: Why not? Slavery is so “outre”.
Hey, and why didn’t Freud do psycoanalysis on bankers instead of hysterical woman who really just wanted it (one can now surmise)? Hmmm, we really don’t have a template for this scenario.
Bankers who want it so baaaad…
Matt,
The always alert folk over at PajamasMedia have discovered that your family gave me my day job so that I could spend my free time blogging about Russia on True/Slant: (http://pajamasmedia.com/richardfernandez/2010/04/05/stop-me-before-i-steal-again/
(comment #30)
So um…yeah, thanks for that.
I followed the high points of “Confessions of an Economic Hit Man” :
1) Combination of foreign banks and aid agencies propose to undeveloped country that they need a hydroelectric project that won’t remotely pay for itself, come up with bogus figures showing it will.
2) Corrupt local “400 families” government accepts rotten deal because they’re getting huge kickbacks.
3) Dam doesn’t pay and little country is stuck in debt for decades.
Frankly, both Greece and Jefferson Country sound like versions of the same basic con job. The victim is at “fault” for the very human failing of jumping on what appears to be free (or cheap) money. On a national scale, though, most people are that Honest Man you can’t cheat, and the con depends upon poor governance by an authoritarian regime, or poor information flowing down to the people if it is a democracy.
A Canadian writer, John Ralston Saul, writing about the problems of 3rd world debt, pointed out that whole countries have become debt-locked over history before. In rougher times, this was solved “by banishment or execution of the creditors”. Economic resurgence and prosperity often followed.
His first three points on the topic are almost incendiary:
1. The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving he problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates.
2. There is no example of nation become rich by paying its debts.
3. There are dozens of examples of nations becoming rich by defaulting or renegotiating.
This begins formally in the sixth century BC with Solon taking power in debt-crippled Athens. His organization of general default – “the shaking off of the burdens” – set the city-state on its road to democracy and prosperity. The Athens which is still remembered as the central inspiration of WESTERN CIVILIZATION was the direct product of a national default. One way or another most Western countries, including the United States, have done the same thing at some point. Most national defaults lead to sustained periods of prosperity.
I’ll leave the rest to those who buy his books, but some commentary on one of his speeches is here:
http://lesstewart.wordpress.com/2009/01/07/on-unsustainable-levels-of-debt-another-perspectives/
I’m all for taking out every trader and bank exec from the mortgage companies, who took the bribe money and lowered their underwriting standards to issue millions faulty home mortgage loans, up to the investment banks and banking conglomerates.
In response to another comment. See in context »None of this stuff could happen in the absence of fraud. Fraud is a useful claim because it carries the common remedy of recission (which still requires the payback of the principle, at least).
I’m not a free market fetishist, but it would seem that if the risks of these loans (and the investments that were made from the borrowed dough) were honestly disclosed, the deals could not have happened in a normal market. But they did, and that’s probably the result of both soft and hard bribery and other intentional malfeasance by the decisions makers. For private entities, this malfeasance by their officers would trigger fidelity bond coverage, but probably without sufficient policy limits to cover the loss. For public entities, I’m not so sure where the pocket is that makes these losses good.
The point is, there had to be some fraud involved– either outright lies or failure to disclose material information when there was a duty to do so, plus a duty to conduct due diligence before entering into the agreements. Yet, even with a fraudulent loan, the principle amount has to come back, minus the damages of interest payments already made. A good start, but not quite the same as just “not paying.”
I guess a good way to look at money is as a tool, not a sanctified chalice that must be handled with kid gloves. Sometimes a tool breaks and it has to be made over in a better shape.
As a wise man once said “Two wrongs don’t make a right.” To which an even wiser man said “I’m not looking to make things right, I’m just looking for revenge.”
Can someone explain to me how exactly an interest rate swap works? Assume that you are explaining to a moron.
Say you have access to cheap variable-rate credit and I have access to cheap fixed-rate credit.
You might want my fixed-rate because you don’t want to deal with any unexpected surprises in the long term. I might want your variable-rate because I’m betting that interest rates are going to stay low in the long term.
An interest rate swap is an agreement for us to trade our cash-flows so that you end up making fixed-rate payments on your debt and I make variable-rate payments on mine.
That’s all there is to it.
In response to another comment. See in context »Thanks!
In response to another comment. See in context »Moral action against injustice begins with fighting against illegal war, whether against sovereign nations or financial terrorists.
The United States is warring against the sovereign states of Iraq and Afghanistan, and maintaining up to 1000 military bases in over 100 sovereign countries. The Rothschilds own one half of the world, and it seems they want to own the whole. Gandhi protested non-violently the immoral circumstances beyond his control.
We entered the Gulf Wars on false flag pretenses. There are no plausible explanations for our countries military adventures beyond imperialist greed. We have killed and maimed more than one million Iraqis. We left behind one half million maimed Vietnamese children due to Agent Orange. Besides our industrial pollution in Bpohal, our bloody footprint has crushed people all over this small globe.
The Rothschilds, undoubtedly the owners of the Federal Reserve, do not even show up on the radar of the mainstream or marginal media in the United States. They are spoken about in hushed voices on the innertubes. They are not on the list of billionaires of the world, perhaps because Evelyn is a multi-trillionaire worth roughly 500 T’s.
Non-violent mass protest by 99 per cent of the down trodden of the world is the means necessary to end this despotism. Don’t participate in the wars. Decline the invitations. Don’t pay taxes, don’t pay the banks.
Are you folks crazy or what?
The “No-Pay Movement” — this is like some mass hysteria like Jonestown. Get a clue?
We got into this whole mess because people were not paying back their debt. The No-Pay Movement already happen duirng the run up into the 2008 Financial Crisis. Remember, all those unpaid and defaulting mortgages. I don’t care what their excuses are — I paid off my debt (and some of yours obviously) — from now on, you pay off yours.
Since your all jumping on Matt’s bandwagon like a early season Red Sox fan (remember last year’s winning streak against the Yankees — how did that work out for you?), I’ll propose another movement:
The Pay As You Go Movement. Everyone pays their own way, including Wall Street Banks. No more bailouts.
What a silly post. Attributing the financial crisis to people defaulting on their mortgages is almost quaint.
I would venture to guess that for many of us here, our only debt is a mortgage. So please don’t lose any sleep over paying off my debt.
In response to another comment. See in context »Larry, you called my post silly — how will I sleep tonight? How can I go on when someone as smart and smug as you makes such a definitive comment. Oh yeah, I don’t think we have to assume your a moron. You’re right Larry, only Wall Street caused the problem, no one else was involved. The good folks in Greece didn’t really make their own bed — they were swindled, right?
In response to another comment. See in context »Well, can’t say I didn’t walk right into this one…
In response to another comment. See in context »Howdy larryb33c, can you believe what a complete moronic idiot this martinbreen character is???
“We got into this whole mess because people were not paying back their debt.”
You and that ‘tard, Sarah Palin, America’s #1 airhead, believe that, jackass!
Evidently breen is completely ignorant of securitizations, ABS CDOs, synthetic CDOs, AIG & Goldman Sachs’ & JPMorgan & Morgan Stanley’s credit default swaps mess?
What a moroooooon!!! Yup, some foreclosures in North America caused the entire global meltdown.
Arithmetic for martinbreen….arithmetic for martinbreen….arithmetic calling martinbreen.
Why do we even bother acknowledging these foos and morons?
In response to another comment. See in context »martinbreen
Hello martin… nice to see you back here…
You need to do more critical reading (not trying to be arrogant here but truly helpful)…
I teach a class on how the financial crisis started and my 18-21 year old students are able to articulate better the origins of financial crisis… If you would like resources write me back but wiki these terms and you might scratch the surface on how this whole thing took place:
1) Securitization, Tranches, 30 to 1 Leverage
Counterparty – AIG, Fannie Mae Freddie Mac
2) Credit Default Swaps, Derivatives
3) Collaterized Debt Obligation
4) NINJA Loans, Adj Loans, Alt-A Loans
5) Sub Prime vs Prime Loans (African American)
6) Federal Reserve Board Monetary Policy
7) IndyMac, CountryWide, & Mortgage Brokers
9) 13 Bankers, TBTF, TARP Bailouts
10) 3 Page fax sent by Paulson to Congress
This is a good start; now, martin please know that I value your education…. do not disappoint; give it a try; you can always harass me later with wikiquotes when I err
In response to another comment. See in context »I’m going to throw some religion at this.
Two thousand years ago, Jesus of Nazareth understood how usury could enslave the entire world. In the Lord’s Prayer, he gave us the words, “Forgive us our debts, as we forgive our debtors.” (This from the original King James version published in 1611, deemed the most authentic). Jesus met it literally. We must forgive DEBT.
Over the centuries, this very definite meaning underwent changes in many different languages. For example, it became “forgive us our TRESPASSES” in English and “pardonnez-nous nos OFFENSES” in French, both of which words can have any number of meanings, no doubt to the great relief of the money-lenders.
Why not bring back the original Christian message? Debts are to be forgiven – both those we owe and the debts owed to us – if society is to return to a healthy state. This should be especially true when others have imposed their debt burdens on us.
The No-Pay Movement? Wouldn’t Jesus say, “Yes!”?
Canny politician? Surely you jest, Matt. If there is any canniness on Capitol Hill it is not used in the interest of the American people.
There are some reasonably intelligent men and women, but few, and apparently none with the acumen, or perhaps canniness, to heard the blithering idiots about them in the right direction.
-RLee
http://therleepost.blogspot.com
The word “revolution” gets mentioned a lot these days, yet nobody seems to know how to revolt (as Matt points out at the beginning of his post).
This seems like the answer, thoough, doesn’t it?
Whether it’s your upside down house or a two-ton municipal debt load, walking away is the trump card. What would the banks be able to do?
It’s time to ignore the fear and stigma surrounding credit scores and the ability to borrow in the future. As one of the comments in this section points out, so much of our economy is built on fake, inflated wealth. What’s real? A credit score. Meh. It’s merely a facet of a totally corrupt economic illusion that, until now I hope, scares people enough into being good little upside-down-mortgage-paying little boys and girls.
Screw that. Walk away.
In all of this love fest over the banks, maybe one of you can locate an attorney who would like to stick it to them. I have a pending case against CitiBank/Group, it was a counterclaim, for tortious interference in my business prospects. I was building my first (and now only) house in my own neighborhood, an in-town transition area that was a natural for fast changing home values, thus I was unaware of any national trends.
I invested all my savings and borrowed like any new business person would, worked hard and long hours, built a really great house, only to have my product suddenly devalued by 40+% upon completion due to the bank incited housing crash.
I need a, to use Matt’s term, ‘canny’ attorney to argue this case. Email is raleeBoston@gmail.com (says boston in email, but I’m in Georgia right now, as is the case)
-RLee
http://therleepost.blogspot.com
Won’t just your government deem it illegal to “just default” on such loans, and judge the deals done to be lawful? I assume that the banks have not done all that much downright illegal: See, they managed to get all the rules changed just some years before! Thus, things that possibly would have been deemed illegal less than a decade ago, was all nice and good when it was actually done. That is the problem, and I don’t see much way of fixing it. You gave them these options, and the banks used them in full force.
Also, the bail out seems totally criminal, with the people calling the shots having stakes and interests in the banks that was bailed out. But even that won’t ever be deemed illegal. It is moronic and absurd – but that’s the way you did it, and now it is done.
If you’d want to take the banks, then stop lending them money for free, and force them to mark to market.
That won’t happen.
What if the U.S. just decided not to pay any of its foreign obligations?
Take your pick (individually or any combination):
1) It would have a great financial headache off its shoulders
2) It would lose its status as reserve currency
3) It would have the opportunity to rebuild its prosperity via creative production
4) Nothing to rely on…
5) Something to look forward to…
In response to another comment. See in context »No payment is Everyman’s only recourse but obviously only works if everyone – or a substantial proportion of those affected by usury or fraudulent practices can agree to No Pay.
If we can all agree on one or two very simple and basic ills, from Goldman to lobbyists overwhelming democracy, No Pay is a powerful weapon.
Say 25% of Fed taxpayers could agree to a single condition – the elimination of lobbyists from Washington, say – and then withhold their taxes until the condition is met. Not refuse to pay. Withhold. Perhaps escrow the tax amount so that, once the condition (abolition of lobbyists in this case) is met, the taxes will be paid with interest.
Could the Fed function with a 25% loss of income tax? Could 25% of US taxpayers be prosecuted? And what for? It is not, after all, a refusal to pay. It’s simply a refusal to submit to a system which these 25% No Payers believe is corrupt and undemocratic.
No Pay is a super-powerful weapon IF sufficiently large numbers of No Payers can be mustered. A weapon to bring into line governments, state legislatures, banks and any other massive operation which relies on equally massive cashflow for survival and power.
The question is will Greece, will any other victimized group, resort to what is a finessed solution or simply cave – just as we, as a people, cave to the corruption of our financial and political institutions?
Matt,
While it’s easy to hate the Squid and their buds, the fact is that the government of Greece was complicit in the fraud. They can’t claim ignorance like the bumpkins from Jefferson County. The Greeks need to take their medicine.
First of all, each person must come to some conclusion as to how each country has been led to nationalize the debt of these too big to fail banks, and was it either constitutional or consistent within the economic belief of its system.
For me, the United States preached market capitalism, so there is no justification for this as the mechanism is default/ foreclosure for insolvency. Liberal bankruptcy courts then determine the degree of fault, if it exists, and the debt is cleared from the system. That is the acceptable mechanism to clear the system when a bad bet has been made.
What has happened to Americans and other citizens throughout the world is that they have been enlisted to save broken and corrupt businesses and are now debt slaves. Worse, they are committing their children to this future, though I don’t believe this has sunk in yet. There will be a revolt.
But, as we all know, these clowns are not stupid. They will eventually have to deflect the public outrage, and point it in another direction that allows them to cover this crime with another–probably a war.
I believe the only hope we have in the U.S. is to encourage candidates who disavow the debts transferred to the public. Unfortunately, while I would prefer to be wrong, the vast number of representatives voted out in this next election cycle will be replaced with tea-party yahoos. It will get a lot worse before it gets better. In the upper house, the Senate is a corrupt and incompetent body that is almost completely bought and paid for.
Long range, pipe-dream, wet-dream, undoing government capture through federally financed run-off elections that remove the power of the lobbyist and restore some semblence of democracy. But will we have the courage and balls to take to the streets?
Ah, good luck finding that canny politician who can successfully wield a hammer against a massively corrupt system (which, not incidentally, includes Congress).
We even refuse to fund multiple wars with increased taxes, let alone get Wall Street to conform to some of the laxest regulations in the financial world.
Nope, I’m afraid that if the root problem is corruption, that has to be fixed first, and all other efforts will be, at best, temporary or ineffectual.
The real problem of defaults is that the Gang of Sociopaths (GS aka Goldman Sachs) uses OPM, that is, Other People’s Money. So they take their money off the table as quickly as they can, which accounts for their bonuses and pay scale. If Greece abd others default, it’s the suckers that did business with GS that loses, not GS. Oh, they’ll be inconvenienced, but the real cons will get paid by someone else to lie and steal from them. It’s the pension funds, the retirement funds, and others that unwisely trusted GS and others like them in the first place. Just like the movie Rollover, if a banker in Zurich sneezes, New York says Gesunheit. Everyone’s now interconnected. That’s how they blackmailed the US Treasury for their bailouts, and why they got rid of the Glass-Steagall limitations. They’re sociopaths, but they’re NOT stupid.
Sovereigns should default on the banks, after all they were already bailed out by the government unlawfully and would have had already voided or taken hair cuts on all of their liabilities and unpaid debts.
If the banks don’t have to play by the rules, why should we?
Max Keiser had this link:
http://www.guardian.co.uk/business/2010/apr/07/goldman-sachs-letter-shareholders
They can run, but they can’t hide.
Thank you, Matt!
“It is generally accepted that if the major banks on Wall Street were forced to mark all of their assets to market tomorrow, they would all be either insolvent or close to it.” -M. Taibbi
The No-Pay Movement idea is futile. The major reason is that U.S. politicians are owned by these guys. They can make any of their illegal operations legit with the stroke of a pen. They have and will do this in the future. It’s naive to think that they will ever let go such power and privilege. The only solution to the problem is democracy.
“the only solution to the problem is democracy”?
We sorta, kinda, already tried ‘democracy’. At least that is what the sociopaths called it while they were busy laughing at the concept.
The real solution? There’s plenty but for starters, a length of rope. There’s a few thousand of them. There’s hundreds of millions of us. You do the math.
In response to another comment. See in context »I think you need to be reminded of Ghandi’s answer to the question of western civilization. We all must remember who is in power here and what they are capable of. “The real solution? There’s plenty but for starters, a length of rope. There’s a few thousand of them. There’s hundreds of millions of us. You do the math.” Your statement speaks to the induced societal schizophrenia. Use your head for more than a hat rack.
In response to another comment. See in context »Apart from the bubble economics, banking fraud etc., one of the basic causes of the current situation is that we are stuck with a economic and monetary system which does not work and desperately need to be reformed (watch the movie “Money as Debt 2” for instance). The current system requires infinite, perpetual and exponential growth in order to function. This is an IMPOSSIBLE system in a finite world with a finite amount of resources which cannot support infinite growth. I do not know any top politician in any country who have tried to start a discussion on how to reform the system. Instead they are just trying to perpetuate the existing system by creating more and more debt, printing more and more money or asking the IMF for help.
There is no way countries like Greece, Iceland, Ireland, Latvia, Lithuania, UK, US, Spain, Portugal, Italy, Japan, etc., etc. will ever be able to pay back their debts without destroying their national currency (if they are lucky enough to have one) or “prostituting” their children to the IMF as Max Keiser likes to put it. Michael Hudson (who deserves credit for the “no payment” idea as well) interviewed in the latest ‘On the Edge with Max Keiser’ says the following: All over the world you have debt in excess of the ability to pay. Normally you would have a financial crash and un-payable debts would be written down to a level that can be paid. However, the governments don’t want their main campaign contributors – the banks – to take a loss. So they save the banks, leave the debts in place and instead introduce austerity measures on the public. Helping the creditors in this way is Economic Suicide! It is “Junk Economics” that has lead in almost every country that has adopted it to shortening life spans, worsening public health, worse education, lower productivity, destroyed tax base, emigration and short term governments. You would think that they had learned from the 50 years of IMF austerity programs in Latin America and Africa. Austerity programs prevent investment, shrink the domestic market, cause unemployment and the result is that countries become even more highly indebted and even more dependent on foreign debt. Any IMF loan is designed to destroy a country, to impoverish the labour force and give to the wealthy financial sector, and to shift the tax burden off the rich on to labour. That is suicide! (source: http://maxkeiser.com/watch/on-the-edge/03-april-2010-michael-hudson/)
The people will have to impose the “no payment” solution like they did in Iceland with a public vote, because the politicians will never do so. If enough countries decide to follow the example of the Icelandic population, then not only will they all be better off in the end, but we might finally also get to a point where politicians understand that they have to stop trying to perpetuate the impossible economic and monetary system, and start designing a new system that works. The sooner this happens the better.
I am in full agreement with Max Keiser. Back in the early 1990s, I wrote, “Beyond Barter: A Guide to Alternative Currencies and Banking Systems”. So radical it was that even Loompanics Unlimited wouldn’t publish it. So I wound up serializing it in my own newsleter, “SERF’S UP! Common Sense for the Common Peasant”.
Who we need right now is an Andy Jackson type who will kick the table over and run the banksters out of town. Starting first with the Federal Reserve! What ever milk-toast, watered-down reforms Congress come up with are meaningless until the Fed itself is dealt with. Our monetary system is an illusion. Our currency only has value because we are led to believe it does. All the credits and debts are, therefore, illusions, too!
When I wrote “Beyond Barter”, only about a handful of communities in America were printing and using their own local currency. Today, over 200 are. It’s high time that our own Federal government, as well as the Greeks and everybody else, starts printing up their own credit-based currency rather than use the debt-based money the banksters trick us into using.
Will there be some chaos? Yes, I think Keiser’s assessment of 2-3 years is probably on target. Jeffrey Sachs, the famed economist from Columbia’s Earth Institute helped saved many nations with his ’shock therapy’. There is no clean, incremental way to solve the problem. You have to cut the cancer out with one swipe of the knife.
[...] Taibbi’s thoughts on how to get back at the TBTF banks: The No-Pay Movement. I’m not sure I know enough about what the consequences of a plan like that would be to say [...]
[...] Yup, good luck with that. One a somewhat brighter note, my mission to encourage default on a massive scale is, at least getting a few legs. Matt Taibbi take a look at Max Keiser’s call for Greece to simply default on the Goldman bonds that fucked up its public accounts, and notes: [...]
[...] of the current collapse, from Iceland to the mortgage bubble, at least 2-3 years ahead of time. His solution is simple, don’t pay the debts! Keiser contends that since all of the debts were based on fraudulent money, securities, and [...]
Max Keiser’s idea is interesting, but I prefer Bill Black’s suggestion:
a corporate three strikes law leading to a corporate death penalty (no room for chapter 11 reorganization) for companies who commit fraud, harm consumers, or fail to disclose their practices of profit….
If personhood and corporatehood are the same under law, then why not bring corporations under the same rules as the rest of us:
1) increase corporate tax rates
2) stiffer penalties for criminal activity
3) monopolies, mergers (only in Massachusetts)
4) list of corporate pre-existing conditions
5) Board of Director Impeachment Processes
Other requests are invited!
[...] story here from Matt Taibbi via TrueSlant. Need a non-sequitur interlude? Click here. Often also called an [...]
We have the resources to improve everyone’s lot. The expediential compounding of the Billions and Trillions of dollars grows into a literal situation where we cannot print enough paper to represent it. Certainly there is no physical standard (like gold) to back up the supply—so let’s face the fact: The Money is Digital. It is essentially imaginary. So I say let’s imagine this resource working for the common good. Let’s unleash the power of forgiving debt. Sure it sounds naïve, but there is no better workable (non-destructive) solution I can think of…
Here’s just one solution: I’ve read that American Banks have roughly 13.2 Trillion dollars in assets as of Sept 2009*—so lets have them bail us out. Have the top 100 American Banks chip in a percentage of their assets until One Trillion dollars is reached in escrow. Then, divide that sum evenly among every man, woman and child in the USA (population 300,000,000).
We would all get roughly $30,000 dollars apiece. Now that’s stimulus!
If the government could get most of us $300 tax rebate checks during the Bush era, government could (with the help of the private sector) make this happen.
There’s a book titled No Rich No Poor authored by Charles Andrews – it’s a pretty cheeky concept–not to mention impressively researched and well-argued. As you may have surmised; the thesis is embedded in the title.
The problem with it: A hard idea to sell. That’s because it runs contrary to human nature. Face it, no one wants to be poor, and everyone would like to be rich. I understand–personally speaking, I admit it: I’d like having more money—it would mean less worry and more peace-of-mind. But I am all about “making a living, not a killing”–(quote from Utah Phillips).
* Calculation from: Large-Scale Public Investment-Employment: A New Deal For Our Times by Alan Nasser
It is interesting to note that in America, prior to “Industrialization”, corporations had to draw up a charter of purpose addressing how they would service “the common good”… This notion has fallen by the wayside in a big way.
It is not the government we should direct out anger toward, as much as the corporations that control the government. This is most definitely a “worldwide problem” because, if you include corporations in the calculation, almost half of the top ten world GNPs are Corporations–as opposed to Nations.
That fact reveals a overarching Timeline of Economic History:
The Agrarian Age – Lasted a long time
City States (Athens, Rome) – A relatively long time
Nation States (UK, USA, USSR) – A few centuries
Corporate States (AIG, Wal-Mart, Exxon-Mobile) — lasting only decades so far!
Once more, each of these “AGES” has been “telescoped” much like the time-compression mankind has experienced by growing from hunter-gatherers, to farmers, to manufacturers, to industrialization (mass-producers), to the Information Age—now refined as the “Digital Age”.
So, in conclusion:
Let’s make the REAL Hard Choices—let’s do the “heavy lifting” I know we can…
Politicians are fond of saying “we need to make the hard choices”… Fact is, cuts in education and human services are the EASY choices—those entities are relatively helpless to fight back.
The actual HARD CHOICE would be to Say NO to the Big Money Powers that BE.
Jere Stormer — Defending the poor in the big class war.
Redistribute the wealth – It’s simple and painless!
In the Digital Age money is all imaginary–so let’s imagine some in our pockets.
Check out the article by Darius Guppy at:
http://www.telegraph.co.uk/news/features/7280559/Our-world-balances-on-a-sea-of-debt.html
It amazes me no end that people who would never in a million years steal a car feel morally justified in walking away from a mortgage that they can afford to pay. I have a lot of sympathy for folks who lose their homes to foreclosure because they got laid off or sick or divorced or some other reason beyond their control. But these dirtbags who simply decide they no longer wish to pay their mortgage because the house is underwater- that’s THEFT.
crimsonwife
You have to disclose better how you are personally affected here so readers can make sense of your position… All this excess emotion towards the reason why people fail to pay their mortgage is not necessary… “good or sympathetic reasons” vs. bad ones… it doesn’t matter…
While I am not one of those ‘dirtbags’ walking away from a commitment that I can afford to pay; I am sure you exaggerate the issue into theft….
First, clients who walk away from their mortgage have consequences to their ability to access future credit, the interest they will pay for future credit, their credit score, fodder for future job applications, and at least a seven year history of this following them around….not really theft but giving up one concern for several other down the road…
Second, the origins of housing bubble are not primarily due to individual homeowners. This bubble was engineered with many parties profiting: rating agencies, insurers, investment banks, mortgage brokers, and investors (long and then short)…. So to create little pockets of people who have been damaged versus the mean, irresponsible individual homeowner who walks away is ignorant… We all have been damaged by this at every level…
If there are some who choose to walk away, then that’s their business; it has been my experience that when people do walk away from these major investments a few things happen:
1) Their health improves
2) It calls more attention to the real problem (which is where this crisis started in housing)
3) It challenges securitization process since banks no longer hold the individual loan; they are cut up into pieces (tranches) for investments; by walking away from these loans more and more; investment that were designed to fail become more visible
The last thing I’ll say is that your response signals to me someone who sees things in black and white terms… right and wrong… in this economy morality is not fixed; it is a moving and breathing thing… our economy has been turned into (YOYO) You’re On Your Own from a country that used to be more (WITT) We’re in this together… If people are starting to recognize that they are becoming indentured servants and are choosing to walk away, than why the hell do you care…. (other than the value of your property)?
In response to another comment. See in context »“You have to disclose better how you are personally affected here so readers can make sense of your position…”
I was stuck in a crappy little rental for YEARS because my husband and I refused to take out a mortgage we knew we couldn’t really afford. We scrimped and saved to try to save up 20% down and kept falling further and further behind as prices kept skyrocketing. While all around us we saw people knowingly purchase homes they couldn’t really afford.
“Second, the origins of housing bubble are not primarily due to individual homeowners.”
Pardon my French, but that’s a load of steaming cattle manure. 99% of our acquaintances who bought into the overheated California market during the 2005-2008 time frame knew very well that they could not really afford the homes. They weren’t dummies but they WERE greedy, plain and simple. They were convinced that prices would go up such that they could either refinance or sell before the “teaser” rate expired. I heard it time and time again straight from the horse’s mouth.
If they got what they truly deserved, they would be sitting in jail for grand larceny…
In response to another comment. See in context »crimsonwife
The fact that you and your husband know yourselves better than your neighbors and have been smart about how you have approached long term debt is commendable, but it doesn’t really matter what the people around you did if that’s only perspective you will entertain…. It still not theft!
I empathize with your sentiment of the consumption gone wild witnessing process you refer to but your experience isn’t the whole picture… In fact Elizabeth Warren has written a book that talks about “THE OVER-CONSUMPTION MYTH” you refer to in housing called the The Two-Income Trap
In terms of the origins of the housing crisis, you need to be a bit better informed… I teach a university class on the origins of the financial crisis and maybe this will help you start to research it (or maybe you have already formed your own opinion)
The whole reason people started seeing the housing market was a place to make money was due to the following factors:
1) the federal reserve keeping interest rates artificially low for a decade,
2) lending standards were reduced (have you heard of NINJA loans? No income No Job No Assets
3) investment banks started packaging loans into securities called CDO’s, Collateralized Debt Obligations — trading mortgage backed securities (MBS)
4) rating agencies like Moody’s, Fitch’s and S&P gave them AAA credit ratings that ended up being bought in pensions and by little old ladies who need income (when they were lower rated junk)
5) Insurance companies sold policies called Credit derivative swaps (CDS) to investment banks to protect against default which turned out to be wagers and side bets for wall street
6) Wall Street Banks made sure they didn’t have any cash on hand while they changed the leverage of those side bets to 30 to 1 (which means that for every dollar they had on the books they were leveraging 30 with side bets)
7) Predatory Lending practices by local mortgage brokers like INDYMAC, Countrywide and large bank bucket shops designed to get client to refinance their existing mortgages (in poor African American or ethnic neighborhoods like Slavic Village in Cleveland)
9) Historically low corporate taxes for companies to offshore their assets into tax havens like Caymen Islands, Switzerland etc.
10) Accounting Fraud – accountants helped to book each loan as having full value even as many of the securities trading were having 30-40 default rates….
You can check all of this out on-line and come back and harass me if I am wrong… The best resource I could give you is Bill Black (he was the chief fraud investigator during the S&L crisis)… but we have a short memory when it comes to corporate crime: ENRON, MADOFF, WORLDCOM, DOT COM BUBBLE, REAL ESTATE BUBBLE, GOLD BUBBLE…..
So, crimsonwife… in so many way it is not the individual’s fault. No, it is more likely series of economic steps created by Milton Friedman that led us to a change in capitalism 40 years ago…. This has led to de-regulation of the financial sector, privatization of resources and our political system and the cutting of supports like healthcare, education, and job losses to globalization…. WE CALL THIS NEOLIBERAL ECONOMICS…. get to know it, because it is the governing system in a global marketplace…
The only things Americans make now are financial securities that implode…
Good Night & Look Forward to Hearing About Your Journey to Wikipedia or not…
In response to another comment. See in context »“lending standards were reduced (have you heard of NINJA loans? No income No Job No Assets”
Did the loan office/mortgage broker stand there with a gun pointed at the individuals forcing them to take out these “liar’s loans”? Just because someone is willing to lend you the money does not mean you should take them up on the offer. I could probably walk into a Porche dealership and qualify for lease on a new Cayenne SUV but that doesn’t mean I can actually afford to drive one. It’s MY responsibility to say, “thanks, but no thanks” and keep on driving my Toyota.
If it weren’t for the GREED of the individual consumers, there would have been no financial crisis. Whatever happened to the quaint idea of living below one’s means? If everyone had done that for the past 2 decades, our economy wouldn’t be in the current mess.
In response to another comment. See in context »Cool! Now for TIND to really run an experiment…gee, gosh golly…there are no experiments in eco classes…except maybe opening a savings account…oh, ok, there’s stock buying. And gee, that includes stories about monkeys and elephants doing great stock picks…doesn’t it? Well, there is always the economic history of the Federal Government to…oops, wait, depressions, inflation, bottoms dropping out, teapot domes popping up…ah, that is why smart people do not trust the government and are cary of it and whatever it espouses. Milton Friedman? No one at a real gut level of dealings paid any attention to him…and if they did they ended up taking a screwed eco course in trying to right themselves. Which also failed…
In response to another comment. See in context »What you need to do is work on some future derivative that you sell to the brokerage houses based on whatever and go from there…let’s say, derivatives of vehicle recalls…based on a time factor…less time involved would mean less loses for the car company and the derivatives could surge…upping their market value. They then could be resold on International Markets paralleling oil prices which would also rise if more cars were running right…or, at all. Their value would rise (along with the oil) even more with this offset. We’ve got a spiral! Guess the catalyst worked in this experiment!
Actually, the whole mess looks like the History of Poland, many times overrun but not always due to greater powers but at times their own issues subverting them…(Michener’s historical novel, “Poland”, deals with this…) Hmmm, when will the jokes come? Have we become a Banana Republic?
Matt-
Your best quality is the understanding on the pure mentality of GS or a Bill Blount, whom I knew well in my grad school days (we both married girls from the same sorority).
Bill and I were having a beer one night when he expressed surprise that I was not a Democrat. He said, “You’re crazy. Become one of us, move to Montgomery and we’ll all make a million dollars by the time we’re 30.”
These people never change, and there’s never a shortage of 20-somethings who have the same mentality. Bill ran “The Machine” at Alabama, and his SGA VP (an MBA classmate) would always laugh when I would mention its existence, saying, “There’s no such thing”. Sure.
It isn’t as if we are all going to climb trees and start shying coconuts at each other if Greece defaults or the big banks go under. That was one of the lessons of the 1930s when an awful lot of people, possibly worked up by the Scopes Monkey Trial, worried about the trees and coconuts scenario.