Is Obama About To Allow Mortgage Debt To Be Reduced For 15 Million Underwater Owners

[Bloo Loo]

Okay, read what you have said and disagree to a point.

The other side of the write off IS to retained earnings, who doesn't get the wealth back, the shareholder. The shareholder of these institutions is the state. It's the perfect fiddle, the state has effectively monetised the write off. Hasn't it?

I dont think the GSEs had any earnings in the last 5 years. TBH...retained, declared or otherwise.

[huw]

Only way it would make sense is for corresponding haircuts to be imposed on the bondholders. That would be debt-forgiveness. Anything else is just balance-sheet shuffling.

[interestrateripoff]

money doesnt come out of thin air...something is monetised...temporarily....so a debt jubilee is a default..someone somewhere ISNT going to get some expected wealth back.

Denninger talks about this rumour, which is what it is, as occuring, if it does, AFTER the 401Ks are submitted...I beleive that is US pension contributions....so it looks like the US plans to use pension funds to bail out debtors.....Argentina rather then Japan.

Money does come out of think air, it's leveraged the loss is the money disappearing from the system. It's circular, the wealth is an illusion.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7922754/Leverage-mirage-under-fire-as-banks-profits-soar.html

Virtually all of the increase in the return on equity of the major UK banks during this century appears to have been the result of higher leverage. Banks' return on assets – a more precise measure of their productivity – was flat or even falling over this period."

In other words, bankers were not being smart, just borrowing more. And reward structures encouraged them to do so. Little surprise, then, that "those banks with highest leverage are also the ones which have subsequently reported the largest writedowns

[Godley]

I dont think the GSEs had any earnings in the last 5 years. TBH...retained, declared or otherwise.

it doesn't matter whether they had earning or not from the last 5 years. Any write off just increases the net losses and thus no dividends.

This is all academic it isn't going to happen, the consequences of the moral hazard are too great.

[Zngland]

The debt jubilee is coming, they have to reset the counters and writing off the debt clearly is a good political vote winner.

America needs consumers to spend rebalancing the economy away from the dependence on consumer spending will take too long.

Moral hazard is everywhere the ponzi system is collapsing our political masters are getting desperate.

Once they go down this route the house price crash may get even more extreme, as those still in equity will want prices to come down so they can write off some of their debt.

They could possible create some very perverse incentives here.

Best all round , keep the Global ponzi going.

[Guest spp]

Food Stamp Usage Hits 18 Sequential Record High At 40.8 Million

http://www.zerohedge.com/article/food-stamp-usage-hits-18-sequential-record-high-408-million

An endless supply of paper!

[interestrateripoff]

Food Stamp Usage Hits 18 Sequential Record High At 40.8 Million

http://www.zerohedge.com/article/food-stamp-usage-hits-18-sequential-record-high-408-million

An endless supply of paper!

The food stamp recovery.

307,006,550 - Jul 2009

Source: U.S. Census Bureau, Population Division

That's about 13.2% of the entire US population living on food stamps....

Still I'm sure it's contained.

[interestrateripoff]

http://www.boston.com/news/nation/washington/articles/2010/08/05/food_stamp_use_hit_record_408m_in_may/

An average of 40.5 million people, more than an eighth of the population, will get food stamps each month in the year that began Oct. 1, according to White House estimates.

The figure is projected to rise to 43.3 million in 2011.

From ZeroHedge

I assume food stamp usage has never been like this in the past.

[Guest spp]

http://www.boston.com/news/nation/washington/articles/2010/08/05/food_stamp_use_hit_record_408m_in_may/

From ZeroHedge

I assume food stamp usage has never been like this in the past.

Nice chart...any evidence of Government debt bubble in that one yet?

When/how do you short that one?

[Bloo Loo]

it doesn't matter whether they had earning or not from the last 5 years. Any write off just increases the net losses and thus no dividends.

This is all academic it isn't going to happen, the consequences of the moral hazard are too great.

the GSEs are Fannie and Freddie, this is where the write offs are rumoured...not at the banks...it means banks will be able to foreclose and not have to resort to losses on their non recourse loans.

Its the taxpayer that loses. as usual.

[CokeSnortingTory]

You have to remember this is Obama, so any eventual decision will be based on the following principles:

Politics > Economics

Short-term > Long-term

[Guest spp]

You have to remember this is Obama, so any eventual decision will be based on the following principles:

Politics > Economics

Short-term > Long-term

If carlsberg did politicians -

[Godley]

the GSEs are Fannie and Freddie, this is where the write offs are rumoured...not at the banks...it means banks will be able to foreclose and not have to resort to losses on their non recourse loans.

Its the taxpayer that loses. as usual.

Which is precisley the point I was making.

Shareholder = Taxpayer.

[interestrateripoff]

You have to remember this is Obama, so any eventual decision will be based on the following principles:

Politics > Economics

Short-term > Long-term

Shouldn't you also add what the Giant Squid wants?

[Bloo Loo]

Which is precisley the point I was making.

Shareholder = Taxpayer.

From Wikipedia

"The Federal National Mortgage Association (FNMA) (OTCBB: FNMA), commonly known as Fannie Mae, was set up as a stockholder-owned corporation chartered by Congress in 1968 as a government-sponsored enterprise (GSE), but founded in 1938 during the Great Depression. The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities,^[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts"

You see, these mortgages are the basis for the bankers capital assets.

These GSEs are bust, and have been for a long while.

They are Government sponsored, but the charter does not GUARANTEE the defaults...although Bush has bailed out the GSEs to save the banks, who, in spite of this action, STILL have to lie about the value of their assets.

Note the above where it shows the intense LEVERAGE of this procedure...the money that the GSEs pay to banks is reinvested....there is huge dilution, and this dilution affects not only shareholders, but pension funds holding the GSE MBS, the CDOS reissued by Investment bankers, everybody.

in effect, giving $800bn of taxpayers money to hand back to debtors so they can sell, affects those same taxpayers in A: less stable banks, B: lower returns on pensions and C: a lowering further of house prices....leading back to a need for forgiveness,

People deny deflation...the above circle is EXACTLY where deflation IS taking place.

Edited August 6, 2010 by Bloo Loo

[Georgia O'Keeffe]

Debt forgiveness is the new black.

It's going to spread to entire nations before this is over. I know this 'cause my sig says so.

I think it has to happen in the UK at some point but id hope that the debt writedown/forgiveness is applied in the UK on a more nuanced basis to target the more essential parts of the economy such as BTL and properties in the 1 million + bracket

Edited August 6, 2010 by Tamara De Lempicka

[Bloo Loo]

I think it has to happen in the UK at some point but id hope that the debt writedown/forgiveness is applied in the UK on a more nuanced basis to target the more essential parts of the economy such as BTL and properties in the 1 million + bracket

why?

why cant people who made bad lending decisions EAT their own cooking??

[Georgia O'Keeffe]

why?

why cant people who made bad lending decisions EAT their own cooking??

i think it would be unfair, they didnt really make bad decisions, they were just unlucky that a crisis nobody could havve seen coming hit. Its generally fairer to spread it out nice and evenly amongst the tax payers causing it by not spending

[VeryMeanReversion]

The big threat to US banking interests is strategic default and owners walking away. I think there is a cascade risk to this.

If they can keep negative equity down to less than 10% then it's not worth peoples effort (credit) to walk away.

"Keep the peasants in their debt-slave boxes".

VMR.

[Bloo Loo]

i think it would be unfair, they didnt really make bad decisions, they were just unlucky that a crisis nobody could havve seen coming hit. Its generally fairer to spread it out nice and evenly amongst the tax payers causing it by not spending

"Holy Bailing Bankers Batman....Its staring me in the face and I never saw it either"

"Well Robbing, How do you think I managed to pay for the batcave, the mansion and the kinky outfits"

[Bruce Banner]

The big threat to US banking interests is strategic default and owners walking away. I think there is a cascade risk to this.

If they can keep negative equity down to less than 10% then it's not worth peoples effort (credit) to walk away.

"Keep the peasants in their debt-slave boxes".

VMR.

Good point.

As I understand it, in The States, it's standard practice to hand back the keys and walk away without any further commitment. Whereas, in this country, the lender will pursue the mortgagor for the balance of the debt.

[fluffy666]

I think it has to happen in the UK at some point but id hope that the debt writedown/forgiveness is applied in the UK on a more nuanced basis to target the more essential parts of the economy such as BTL and properties in the 1 million + bracket

My idea for dealing with the mess was the idea of a general Credit - starting at £1k for 1 year olds to £20k for 20 and over. This credit would first be applied to reduce secured debt -i.e. mortgages - followed by unsecured debt; only after a person's debts were fully paid off would any cash be given; for under 21-s the credit would not be available until the 21st birthday and would be net of student loans.

At exactly the same time, base IRs would be hiked to at least 5%, and strict limits on secured and unsecured debt as multiples of income put in force, to stop people simply running up debt again.

The massively overleveraged would still be wiped out as house prices fell.

Savers/Pensioners would have another £20k savings.

Most mortgagees would see no change - balance lowered by £40k per couple, but payments staying roughly the same due to higher rates.

Those saving for houses would find lower prices and 40k more deposit, per couple.

Banks would be recapitalised indirectly, but with rules now in place to stop them reflating the property/consumer credit bubble.

What's not to like?

[aa3]

The big threat to US banking interests is strategic default and owners walking away. I think there is a cascade risk to this.

If they can keep negative equity down to less than 10% then it's not worth peoples effort (credit) to walk away.

"Keep the peasants in their debt-slave boxes".

VMR.

Yes if the masses simply walked away from their debts there is not much the bankers could do. The most is threaten that it will wreck their credit scores making it so they can't get a mortgage. But since a substantial percentage of the population would have wrecked credit scores, the price of housing would simply adjust to what people could afford without credit. Which is part of the cascade risk.

[Bloo Loo]

My idea for dealing with the mess was the idea of a general Credit - starting at £1k for 1 year olds to £20k for 20 and over. This credit would first be applied to reduce secured debt -i.e. mortgages - followed by unsecured debt; only after a person's debts were fully paid off would any cash be given; for under 21-s the credit would not be available until the 21st birthday and would be net of student loans.

At exactly the same time, base IRs would be hiked to at least 5%, and strict limits on secured and unsecured debt as multiples of income put in force, to stop people simply running up debt again.

The massively overleveraged would still be wiped out as house prices fell.

Savers/Pensioners would have another £20k savings.

Most mortgagees would see no change - balance lowered by £40k per couple, but payments staying roughly the same due to higher rates.

Those saving for houses would find lower prices and 40k more deposit, per couple.

Banks would be recapitalised indirectly, but with rules now in place to stop them reflating the property/consumer credit bubble.

What's not to like?

Helicopters are expensive to run.

everyone would need to be dropped on the same day, otherwise the first recipients would price out the late receivers.

[Georgia O'Keeffe]

Good point.

As I understand it, in The States, it's standard practice to hand back the keys and walk away without any further commitment. Whereas, in this country, the lender will pursue the mortgagor for the balance of the debt.

Your understanding is incorrect, this only applies in a handful of states , most states are full recourse