Wall Street and the Politics of Finance

[Thailandnotes]

Succinct...

Put another way, bankers don’t care if someone borrowed $250,000 against a house that is now only worth $100,000—the loan amount to be repaid is $250,000. But because the house price has declined to $100,000, bankers can now buy two and one half of these houses for the original loan amount. And because the borrower must repay the full $250,000 plus interest and fees for a house now only worth $100,000, this represents a transfer of their future economic production to bankers of $150,000 plus interest and fees. When this is aggregated across all of the borrowers and all of the bank loans, it represents a massive transfer of wealth from the people who produce it to a group of people who have been given the right to create money at the push of a button— Wall Street.

http://www.counterpunch.org/2012/10/...cs-of-finance/

[Milton Kuo]

Re: Wall Street and the Politics of Finance

Actually, the banks do care about holding mortgages of $250,000 against houses worth only $100,000. The borrower in this instance can default and stick the bank with the house, which the bank must then sell at a loss. In recourse states, the borrower can declare bankruptcy to discharge any additional debt not covered by the sale of the house.

So far, due to weak regulation and political reasons, the banks have been allowed to delay foreclosing and selling on houses whose mortgages are in arrears. Bernanke is desperately trying to reflate the housing bubble to save the banks. If he succeeds, all of the crappy MBSs and CDOs created during the housing bubble will recover in price and insolvent institutions (as well as the Federal Reserve itself) will magically become solvent.

The transfer of wealth is primarily from bank shareholders and buyers of crappy paper to bank executives. People who bought over-priced houses have only themselves to blame if they're dumb enough to continue paying for an over-priced asset. In the current crooked environment, the shareholders and buyers of crappy paper are being made whole or partially-whole through theft from all Americans.

[seobook]

Re: Wall Street and the Politics of Finance

In some cases the banks (and bankers within them) got paid off multiple different ways, even on non-performing mortgages
- increased bonuses based on fraudulent profit numbers
- increased stock price to dump their shares on mutual funds & retail investors
- selling the crap mortgages off to other investors before it goes bad (and in a number of cases selling the same note multiple times)
- administration fees for collecting mortgage payments & kickbacks on preferred above-market rate forced placed insurance
- payouts on credit default insurance against the toxic sludge (and AIG was not allowed to sue them in exchange for being bailed out)
- having the federal reserve buy trash assets at above market rates
- some of the folks who invested in the creation of rotten synthetic derivatives & got paid out on those then dumped that money into gold as the Dollar kept being printed to paper over the destruction those same folks inflicted on society

The other remaining form of wealth transfer are inflation & economic instability destroying jobs.
- During the price ramp of the bubble anyone who wanted a house may have had to pay more to get it. A friend of mine who had an addition done to his house saw the price of nails quadruple near the peak. He ended up laying his own floor tiles on principal because he thought the contractor was soaking him.
- Anyone who had savings also got soaked by that inflation.
- When time came for disinflation the Fed kept papering over in order to push inflation rates positive.
- The impact on jobs (and that knock on impact on mental + physical + social health) is hard to over-state. Once people lose their jobs some lose their sense of self worth, purpose & at the extreme maybe even the will to live. Mix in shame for not being able to provide for one's family & so on and there are likely a lot of statistics that are simply missing from a look at economics. Likewise with heart attacks and some other issues where people were running near the redline & then this pushed them over.

People who bought over-priced houses have only themselves to blame if they're dumb enough to continue paying for an over-priced asset.

I think for many the cut is deep and they don't want to give up due to thinking it is a poor reflection of themselves.

they are still participating in "the American Dream" by being a home owner (even if they are underwater)

and if they don't pay "their debts they owe to society" they are "immoral" ... or so the mortgage banker would like us to believe ;)
http://www.thedailyshow.com/watch/th...ategic-default
a lot of marketers exploit religion and alleged morals to extract rents. sad it works, but it does.

[don]

Re: Wall Street and the Politics of Finance

Remember all the "tranches" that were put together by the TBTFs - built to fail sub-primes hidden beneath a frosting of "AAAs' - all made good by the corrupt rating agencies and pawned off on pension funds and foreign investors. A major transfer of wealth from those who produce it to those who take it.

[don]

Re: Wall Street and the Politics of Finance

Actually, the banks do care about holding mortgages of $250,000 against houses worth only $100,000. The borrower in this instance can default and stick the bank with the house, which the bank must then sell at a loss. In recourse states, the borrower can declare bankruptcy to discharge any additional debt not covered by the sale of the house.

So far, due to weak regulation and political reasons, the banks have been allowed to delay foreclosing and selling on houses whose mortgages are in arrears. Bernanke is desperately trying to reflate the housing bubble to save the banks. If he succeeds, all of the crappy MBSs and CDOs created during the housing bubble will recover in price and insolvent institutions (as well as the Federal Reserve itself) will magically become solvent.

The transfer of wealth is primarily from bank shareholders and buyers of crappy paper to bank executives. People who bought over-priced houses have only themselves to blame if they're dumb enough to continue paying for an over-priced asset. In the current crooked environment, the shareholders and buyers of crappy paper are being made whole or partially-whole through theft from all Americans.

Hasn't he already succeeded with QE3's mortgage buy ups at 100% mark to model prices?

[Milton Kuo]

Re: Wall Street and the Politics of Finance

Hasn't he already succeeded with QE3's mortgage buy ups at 100% mark to model prices?

It's not entirely clear to me that all of the junk paper is on the Federal Reserve's balance sheet being that it has expanded by "only" a few trillion dollars. Even if Bernanke has already bought up all the junk paper, the Federal Reserve claims it intends to unwind its balance sheet sometime in the future. That cannot happen losslessly without reflating the housing bubble.

[don]

Re: Wall Street and the Politics of Finance

It's not entirely clear to me that all of the junk paper is on the Federal Reserve's balance sheet being that it has expanded by "only" a few trillion dollars. Even if Bernanke has already bought up all the junk paper, the Federal Reserve claims it intends to unwind its balance sheet sometime in the future. That cannot happen losslessly without reflating the housing bubble.

Speculation is the balance sheet will be unwound at a deep discount - after buying those 'assets' at full mortgage value - in all likelihood back to the same TBTFs, as bulk properties.

[seobook]

Re: Wall Street and the Politics of Finance

Speculation is the balance sheet will be unwound at a deep discount - after buying those 'assets' at full mortgage value - in all likelihood back to the same TBTFs, as bulk properties.

isn't that the same thing that was done with Fannie & Freddie recently?
http://www.counterpunch.org/2012/09/...ousing-prices/
http://www.americanthinker.com/2012/...o_us_debt.html

[don]

Re: Wall Street and the Politics of Finance

Yes, a virtuous circle of FIRE