It ain’t over yet until it is over.
Faced with a growing number of homeowners walking away, even sometimes with their pet still inside, banks are so overwhelmed that they have found a new way to handle the crisis.

April 4 (Bloomberg) — Banks are so overwhelmed by the U.S. housing crisis they’ve started to look the other way when homeowners stop paying their mortgages. The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on. Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.

Of course whatever solution being implemented right now is only designed to prevent the bubble from popping further. Even if the market is broken for at least one decade, the only solution is to rewrite these mortgages. But we have heard from the pundits themselves, no measures are being taken seriously for the people. Bailouts are for financial and brokerage firms only. In short, the Bankers who caused the crisis are perpetuating it..

It’s ironic that the industry that caused the housing crisis in America is refusing to allow it’s high end debt to be discharged in a Bankruptcy Proceeding. Granted, filing for bankruptcy protection is not the cakewalk it once was but if you are going to have to file you should not have the reason you are having to file excluded from being discharged…the home mortgage.
This exclusion is the result of a cozy little lobbyist relationship between the American Bankers Association and Congress. It’s the same sort of thing that spending 95 million dollars got them in the new Bankruptcy Act. Only in America can you lobby as a crack dealer for protection of your proceeds. It has to be the greatest slight of hand trick in American Business. If you aren’t clear who controls Congress then look at how quickly the bankruptcy relief provisions for mortgage holders has been defeated…

It is about time that “We The People” begin to voice our outrage. It is not because 15% of the population are getting rich and richer daily that the rest of it must feel bad and think of itself as dumb and idiotic. Today there is one Forbidden Financial Topic: America runs its finances like a crack addict. It is because Congress gave the impression to be able to convert debts into wealth that consumers followed the same steps. Unfortunately everybody is going to realize soon that the philosophical stone is a fairy tale for alchemists.

Great Depression questions resurface amid current economic conditions, just as they have during other downturns, Chicago Tribune declared as of 03/24/07

Fears resurface amid latest turmoil, as they have during previous downturns, but parallels are few and regulation has changed… (but further we read)…. HOLC took over 1 million mortgages in default starting in 1933, worked to keep the owners in their homes and made new loans to strapped mortgage holders. When the agency was finally liquidated in 1951, it even returned a small profit to the U.S. Treasury….

Who is wrong… who is right, would you ask?

Although many people perceive capitalism as the root cause, it is about time to stop socialist bailouts in order to really understand what is really going on. The absolute is that no law can fix a “failure to deliver”. Politicians and monetary scientists have spent centuries to make us believe in their magic tricks. Meanwhile, the US dollar is headed for a deep bottom and that’s the reality.

If you are in a philosophical mood, we definitely recommend The Fable Of The Deserted island

.. Whether your deserted island is your college dorm room, a transnational megacorporation, an apartment in a big city, your automobile, a wide-bodied jet, your television set, your personal computer, or an Internet blog, there is but one fundamental question: “How can I die happy?” Your answer will determine how you live and whether or not your life has meaning…

Dear Readers: This could be gloomiest day of the month. And here is why… As of March 19, 2008, CBSmarketwatch ran one of the scariest headline ever: The Great Unwind has begun:

As markets and economies de-leverage across the globe, investors should avoid companies and countries that have grown to rely too much on borrowed money, they said. That means favoring public-equity markets over hedge funds, private-equity and real estate, while leaning toward emerging market countries and away from developed nations like the U.S., the bank’s global equity strategy team advised. Within equity markets, the financial-services should be avoided because it’s still over-leveraged, while other companies have stronger balance sheets, the strategists said….. “The banks have a long way to go,” the strategists said. “We would continue to avoid the sector while they are de-leveraging.” Other companies are in much better shape, having rebuilt cash from strong earnings since 2003…. However, even though some companies may not have much debt themselves, they may be exposed to over-leveraged customers or highly leveraged investors, Citigroup warned…. “Similarly, many hedge funds have generated healthy uncorrelated returns by adopting cautious underlying strategies, but applying significant leverage. Again, that looks unsustainable in the current environment.” Leveraged economies, like the U.S., should also be avoided, in favor of emerging market countries, which have reduced borrowing, the bank advised….

Well, thank you Citigroup for finally acknowledging that the world credit crisis resulting from lenders’ own criminal doings in the first place has entered its last phase, which reminds us of the Shades of 1929.

The debt orgy is coming to an end. It only is a matter of time… not ‘if’ but ‘when’.

Unfortunately, the recent tax “rebates” implemented to stimulate the economy and the socialist Wall Street bailout will not address our ever growing triple deficits. Nevertheless, the stockbrokers and Co whose machinations brought upon us the day of reckoning will be enjoy driving their ‘ferraris-porsches-lmaborgini-mazerattis‘ for a while longer and at our expenses - rest assured!
But it would be unwise to throw more oil onto the fire. Let’s analyze another fact mentioned by Robert Novak in his editorial Finance’s “New Day”.

The Federal Reserve’s unprecedented bailout of Bear Stearns was crafted not at the White House or Treasury, but in secret by a New York central banker whose name is unknown to Washington power brokers and was a Clinton administration presidential appointee..

America was conned - who will pay? Larry Elliott, working for the guardian.uk, asks

Indeed - Where does it leave us?

Fixing the mess and to prevent it from happening again is a non-partisan issue that goes beyond the future of America. It is the entire world that is shaking and could be crumble down completely at any moment.

Please do not miss any in depth reports by Danny Schechter, for further info.

send us your comment to: indebtwetrust(at)gmail.com

Today, Reuters ran an article whose headline gave us the creeps: Bank-to-bank lending freezes; bankers ask “who’s next?”

… In an effort to minimize the fallout and in conjunction with the fire sale of Bear Stearns to JP Morgan, the Fed on Sunday cut its discount lending rate by a quarter percentage point to 3.25 percent and announced another series of liquidity measures. But with concerns about whether other firms may meet a similar fate to Bear Stearns, nerves on every trade were jangled.

“It’s quite illiquid this morning. If you want unsecured cash you’re really going to have to pay up for it. It’s really quite an intense situation,” said Calyon analyst David Keeble. Banks led the losers as stock markets lost more than 3 percent. UBS, Royal Bank of Scotland and Barclays all fell more than 8 percent. HBOS and Alliance & Leicester slid more than 11 percent. Shares in Lehman Brothers dropped 34 percent before the opening bell on Wall St. “There’s turmoil in all markets after Bear Stearns,” said BNP Paribas strategist Edmund Shing. “Everyone’s asking: Who’s next? Is there a Bear Stearns in Europe? Could investment banks start to fail?” … But International Monetary Fund chief Dominique Strauss-Kahn said the global financial markets crisis was worsening and risk of contagion was increasing. With the dollar sliding to record lows, traders said currency options markets were seizing up too, another reflection of the state of panic and fear that appears to be dominating all financial markets…

The scariest assessment was most likely that issued by Greensopan himself in the FTimes:

We will never have a perfect model of risk:The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities… The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market… The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future. The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress…

Considering the magnitude of the crisis, one question comes to mind: since we are flirting with a turmoil unseen since 1940 and which could translate into a Greater Depression, where is the point to have central bankers managing our economy? Where those big degrees from Harvard and Co lead us in the end?

Too big too fail is a myth… Like Others Before It, Bear Seen Too Big To Fail: who had guessed it among the mainstream pundits. (CNN/03.14)… The ultimate final word is painful. In The telegraphy.uk didn’t mince its words: A world addicted to easy credit must go cold turkey…

When, several years from now, economic historians tot up the final casualty list, a trail of destruction will stretch from mobile homes in America’s Budweiser belt to the council estates of fish-and-chip Britain. The credit crunch travels with alarming ease… Be under no illusion, Friday’s dramatic events in New York were neither an aberration nor confined to the surreal world of investment banking. The pain will be lasting and felt by millions who had no idea they were playing with financial fireworks… For too long, those who warned that the borrowing bubble would burst with terrible consequences were dismissed as congenital gloomsters. Greedy lenders, their irresponsible customers and incompetent ministers formed an unholy alliance to perpetuate a myth: that consumers, companies and governments could keep spending more than they earned and suffer no penalty…

send us your comment to: indebtwetrust(at)gmail.com 

Paul Krugman does a good job at analyzing the financial arcane and picturing its deficiencies. This weekend in the New York Times, he said the following:

To understand the gravity of the situation, you have to know what the Fed did last summer, and again last fall. As late as August the favorite buzzword of financial officials was “contained”: problems in subprime mortgages, we were assured, wouldn’t spread to other financial markets or to the economy as a whole. Soon afterward, however, a full-fledged financial panic began. Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a little-known but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system…. The Fed responded by rushing money to banks, and markets partially calmed down, for a little while. But by December the panic was back…. A report released last Friday by JPMorgan Chase was even blunter. It described what’s happening as a “systemic margin call,” in which the whole financial system is facing demands to come up with cash it doesn’t have.

But as we told you a last week, the danger has increased as mortgage lenders see that more borrowers give up when finding out that they owe more than their homes are worth; they simply mail in the keys, rather than try to work out a new payment plan. Some even abandon their homes before other assets:

“It’s the American way of deleveraging,” said Jochen Felsenheimer, a credit strategist at Unicredit in Munich. “First you sell your house, second you sell your car and in the end you also sell your TV set.” (more - 03/06)

The steadily fall of the US Dollar continues to be a matter of concern, at this pace the breaking point isn’t far away. Please, visit a site delivering currency trading charts, and you will see that the dollar index has plummeted from 77 a month ago to below 73 now. And it is not going to get any better since the consumer confidence is at its lowest since 2002, AP reported.

While 8 million households may lose their homes over the next 3 years, Bank CEOs are being blasted for their obscene payouts:

The report comes a day before Rep. Henry Waxman is expected to grill Angelo Mozilo, chief executive officer of Countrywide Financial Corp., former Citigroup CEO Charles Prince and Stan O’Neal, former CEO of Merrill Lynch & Co. In calling the hearing of his Oversight and Government Reform Committee, Waxman, D-Calif., said he’ll examine if their “level of compensation is justified.”… The report said Mozilo received more than $120 million in compensation and stock sales last year. O’Neal left Merrill Lynch in October with $161.5 million in stock, options and retirement benefits, after leaving the brokerage with its biggest-ever quarterly loss and Prince left with a $10 million bonus, $28 million in stock and options and $1.5 million in other perks when he left Citigroup last fall, according to the report. Representatives for the three companies did not immediately comment…

But this is just the tip of the iceberg. Catching all the economic terrorists involved - from real estate agents to appraisers and other middle men - may be proven difficult to achieve. Fraud compounds the housing crisis :

Arthur Prieston, chairman of the Prieston Group, which provides mortgage-fraud insurance and training to lenders, said that “at least 30 percent of the loans out there contain some form of misrepresentation. But because lenders often have to sell off properties quickly to cut their losses, we will never know exactly how much mortgage fraud has been committed,” he added. Prieston estimates that mortgage-fraud losses were around $4.2 billion for 2006, adding that figures for 2007 “will be much higher.” …

In Europe, illusions are too coming to an end.

Report author Michael Ball said: ‘2007 will probably go down in history as the year that the great European house price boom ended. ‘The year started so strongly on a wave of optimism but ended bleakly for housing markets in virtually every country. ‘Purchasers could no longer afford to buy at ever-rising interest rates. Housing markets either froze as a result or prices started to slide.’..

In economics everything follows the demand and supply. We can see now why it is extremely dangerous to corrupt people’s mind, to trick them into believing that the ’sky is the limit’.

While central banks give us the (false) impression that they flood the markets with as much commercial paper as needed to counter the global liquidity crisis, the real credit squeeze is coming. Not many have noticed this extremely relevant internet headline: Global debt markets fall 45% in fourth quarter - amid fears of rising defaults and widespread economic fallout from the credit-market turmoil.

Easy money has the same effect as cocaine addiction. When the consumption of drugs decreases dramatically, there is a withdrawal. In monetary terms, it is called a ‘contraction’ aka: recession or worse the ‘D’ word. The problem is that the system being itself a ‘debt pyramid’, the dominoes start falling one after another. That is precisely why central banks are not able to print money as fast as it should. In banking jargon, the unexpected consequences are also called ‘moral hazards’.
Additionally there are new worries for the Banks: credit cards and commercial construction loans may be the next trouble spots as strained financial markets constrain credit, CNBC explained as of 03/04. This is precisely why, early this week, Bernanke’s speech mirrored the groundwork for nationalization of Fannie Mae, Freddie Mac! So there we go: in other terms what we’re seeing is a ‘backdoor bank bailout‘ as defined by Dean Baker, and of course financed by the taxpayers.
One way or another - and as usual - the taxpayers are caught in a ‘bind’. Again they will pay for the lack of transparency and/or frivolous regulations. And this will translate into more loss of purchasing power.

Maybe after having read the next paragraphs will you concede the time has come for a major political clean up.

(AP-03/06) Federal Reserve: Homeowner Equity Falls Below 50%… Moody’s Economy.com estimates that 8.8 million homeowners, or about 10.3% of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9%, will be “upside down” if prices fall 20% from their peak… Homeowners’ percentage of equity slipped to a revised lower 49.6% in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9% in the fourth quarter — the third straight quarter it was under 50%. That marks the first time homeowners’ debt on their houses exceeds their equity since the Fed started tracking the data in 1945….

In the same time, we ought to tell you about the latest Federal Reserve Report which is indeed very factual and cannot be dismissed:

(MarketWatch - 03/06) … Considering the impact of higher prices, a bigger debt burden and sagging home prices, Americans were poorer at the end of 2007 than they were the year before, the Federal Reserve reported Thursday. Fed reports household net worth down 3.6% in fourth quarter or $533 billion …

…. The real credit squeeze has started.

If you thought that the subprime mess was the biggest threat, here is another one: the pay-option loans. Here below, you can read the CNBC article explainnig how the “game” works.

Countrywide Financial Corp. has seen mortgage defaults rise as the housing market went from boom to bust, but the nation’s largest home loan provider says it could have more trouble ahead with a particularly risky slate of loans _ pay-option adjustable rate mortgages…. Pay-option loans give borrowers the option to make a lower payment but can result in the unpaid portion being added to the principal balance. They also have the potential to provide high yields to investors who purchased the loans from lenders during the housing boom… As of the end of December, Countrywide had nearly $29 billion in pay-option loans, with about $26 billion of the total having grown beyond their original loan amount, the company said in a filing late Friday with the Securities and Exchange Commission… MORE: 03/04

Another headline in the New York Times caught our attention: States and Cities Start Rebelling on Bond Ratings:

A growing number of states and cities say yes. If they are right, billions of taxpayers’ dollars — money that could be used to build schools, pave roads and repair bridges — are being siphoned off in the financial markets, where the recent tumult has driven up borrowing costs for many communities…. A growing number of states and cities say Wall Street ratings firms assign municipal borrowers inappropriately low credit scores, costing taxpayers billions of dollars… States and cities rarely dishonor their debts. The bonds they sell to investors are generally tax-free and much safer than those issued by corporations. But some officials complain that ratings firms assign municipal borrowers low credit scores compared with corporations. Taxpayers ultimately pay the price, the officials say, in the form of higher fees and interest costs on public debt….

Um-um… who says that low credit scores are inappropriate? Considering the national debt, all we can say: it is about time to put an end to debt-multiplex. Maybe if the rating agencies had sounded the alarm a long while ago, we wouldn’t be there… we told you so a while back: ratings agencies are next to be investigated.
Meanwhile American consumers’ bankruptcy filings were up 15% in February. The February number was 37 percent higher than in the same month a year ago, according to the Bankruptcy Institute.

Wait, it is getting worse: a telegraph.uk columnist acknowledges that the Federal Reserve’s rescue has failed:

The verdict is in. The Fed’s emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed… The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the US credit universe… UBS says the cost of the credit debacle will reach $600bn. “Leveraged risk is a cancer in this market.”

Try $1trillion, says New York professor Nouriel Roubin. Contagion is moving up the ladder to prime mortgages, commercial property, home equity loans, car loans, credit cards and student loans. We have not even begun Wave Two: the British, Club Med, East European, and Antipodean house busts… Half the eurozone is grinding to a halt. Italy is slipping into recession. Property prices are flat or falling in Ireland, Spain, France, southern Italy and now Germany. French consumer moral is the lowest in 20 years… The greater risk is slump, says Princetown Professor Paul Krugman. “The Fed is studying the Japanese experience with zero rates very closely. The problem is that if they want to cut rates as aggressively as they did in the early 1990s and 2001, they have to go below zero.”… (03/02)

Please bear in mind that Ben Bernanke warned that he expects bank failures. This article on marketwatch.com may soon reveal the cherry on the cake:

Gulf investors may not save Citigroup read… The Kuwait Investment Authority also said in January it would invest $3 billion in Citigroup. Al Ansari said “it would take a lot more money to rescue Citigroup.” A spokesperson for Citi was unable to comment immediately when called Tuesday… (03/04)

Back to business as usual? If you read the article in the New York Times today, you’ll have to think so. Republicans and Democrats sank back into a partisan, ideological clash over whether the government should intervene in the real estate mega-crisis and perhaps even bail out lenders.

In Congress, Democratic lawmakers have begun to push ahead with an agenda aimed at shoring up the housing market with federal money, giving delinquent homeowners more bargaining power with their lenders and having the government buy troubled mortgages. About 20 percent of subprime mortgages, which are made to people with low credit scores or low incomes, are delinquent and in danger of default. Moody’s Economy.com recently estimated that three million subprime borrowers were likely to default over the next several years…

3,000,000 million losing their homes PLUS hundreds of thousands which can afford the monthly payments today but will lose their jobs/homes during the deep recession! Remember a couple of months ago, they were talking of 1,2 million. The New York Times article continues:

… Democrats, knowing that they could not muster 60 votes to pass their bill, charged that Mr. Bush and the Republicans were protecting banks and Wall Street firms while doing little for people trapped in mortgages they cannot afford and houses they cannot sell…. But unlike other Democratic proposals, the idea of a government-funded mortgage buyout has considerable support among banks and mortgage lenders. Lobbyists for the mortgage bankers have circulated a detailed proposal, though company executives said they were merely providing “technical information” requested by Democratic lawmakers…

Amid those enormous conflicts of interest, everybody shows his true colors. The Democrats’ proposal shouldn’t lure anybody. Both parties work for the lobbies while accusing each other of doing the same. In the meantime, nobody is being investigated nor arrested.

Don’t worry, be happy? China is still booming and Sir Alan Greenspan recommends the Gulf States to dump the dollar. America could resemble a ‘Banana republic’ sooner than you think!

ps: updates on the world economic crisis are also available on Danny Schechter’s blog.

Fed chairman signaled another interest rate cute yesterday, while saying that he economic conditions have become distinctly less favorable. Over the span of just eight days in January, Bernanke slashed rates by 1.25 percentage points — the biggest one-month reduction in 25 years!

This move should worry us all. Since it is our cheap money addiction that drove us toward this deep recession, why trying to cure the disease with the same faulty logic?

According to the latest essay of F. William Engdahl, it is crystal clear that the catastrophic meltdown must be attributed to the failure to regulate money and credit creation.

As Lawrence Summers, a prominent Harvard professor, ponders America’s need to find a way to stem foreclosures the Bush administration plans to Veto Foreclosure Bill. Mr Summers does not have the reputation to be an alarmist but here some highlights of what he told the Financial Times as of Feb 25/08:

… All honest analysts accept that policies adopted so far, such as the “teaser freezer” limits on resetting mortgage interest rates and increased federal support for mortgage lending, have had only a marginal impact on what may be the most serious crisis in housing finance since the Depression… It appears house prices are down by 5-10 per cent from their peak, with derivatives markets predicting further declines of about 20 per cent… Price falls of this magnitude are likely to mean more than 10m would have negative equity in their homes…

Without finding ways of writing down mortgage liabilities, new finance will do nothing for the problem group that has negative equity. Direct government intervention in mortgage markets risks creating delays, burdening taxpayers and inhibiting necessary adjustments in house prices…

The rationale is the prevention of costly and inefficient liquidations. It is hard to see why similar protections should not be prudently extended to family homes…

Second, methods need to be found to enable creditors who accept a writedown in the value of their claims to retain an interest in the future appreciation of the
homes on which they have mortgages…

Bankruptcy reform alone could, on some estimates, avert 500,000 foreclosures and, by establishing templates for renegotiation, aid a wider restructuring of mortgage debts.

Alas as the Bush administration showed, there is so much conflicts of interests that even the best intentions may morph into mirages forever. Ben Bernanke knows this and this is why he lowered the interest rates again. How low can they go - and at what price?

President Bush said Thursday the country is not recession-bound and, despite expressing concern about slowing economic growth, rejected for now any additional stimulus efforts. “We acted robustly”…  (Feb 28/08)

The big event of this weekend was in the New York Times and entitled: A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered.

A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted… (Feb/23/02)

Finding a solution to this unprecedented crisis is needed… but let’s bear in mind that any intervention will come down to making debts to pay debts…. the problem is just delayed while making the outcome M-U-C-H worse… In real economics, debts that cannot be paid are destroyed.