Finally!!! Alstry provides the Solution
August 02, 2009
– Comments (17)
I know Alstry is a downer...but Alstry tells the truth and to appreciate our current predicament you must know the truth. In order to provide a solution, one must know the problem. It is clear from the many caps bloggers, many of you don't....and seemingly, niether does Benny the B or most economists.
If you want to destroy someone ecnomically, just loan them more money than they can ever pay back. Once the money is spent, the person is bankrupt. In order to destroy a nation's economy, just infect enough people, businesses, and governments with too much debt and you bankrupt the entire nation.
Further, even if you did not borrow, you are still affected by the behavior. Everything you hold value to is simply a product of the relative value around you.
Let me give you an illustrative example:
Let's take a housing community where there is stable home ownership. Then drop interest rates to unheard of levels and stop doing income verifications. Pretty soon, an income that used to qualify for a $300K home now qualifies for an $800K home. Since most of America spends, not on price but on payment, pretty soon the values of the homes in that neighborhood go to $800K. Those of you that sell products on payments, you can see this pretty easily.
At this point everyone is happy as the buying frenzy begins. The existing homeowners in the neighborhood because their homes have increased in value materially. The buyers because they have achieved the America Dream. The sellers because now they can go out and buy a $1.5 million dollar home(financed of course). The real estate agent for getting a huge commission. Same with the mortgage broker who got a big commission. And the bank who sells the loan, packages the loan, and/or issues credit defaut swaps on the loan(which allows them to not care if the loan ever gets paid back). Home Depot and the furniture store are probably benefittnig from the new purchase as well. Finally, the biggest beneficiary is government, because not only can they raise property taxes on that house, but higher assessments can be imposed on all the houses in the neighborhood due to the new comp plus the higher sales and income taxes due to the transactions above.
Buy the way, let's not forget the existing homeowners in the neighborhood who started taking out home equity loans and spending it on everything from renovations, to trips, to new cars and boats and cabins. At the time, it seemed OK because the perception was prices could only go up because there was a trust that the banks would be responsible in extending credit as they had been for the past 100 years.
Once you take a step back, it is pretty easy to see, once you make it easy and cheap for people to borrow money without adaquately assessing ability to repay, you are in effect handing the nation a blank credit card to spend as much as it wants and run up debt to unsustainable levels.
It was this exact situation that the FED was mandated to prevent through proper oversight of lending practices.
But the insane lending didn't stop with housing, it continued into commercial real estate, private equity funds buying businesses at insane prices with no money down, federal, state and local governments borrowing crazy amounts of money based on seemingly ever increasing tax receipts.
The banking system went into the credit creation business because debt and its derivitives were the new products to be bought and sold. The total value of debt/derivitives eclipsed the economy many times over. None of the bankers gave a damn about the effects on the real economy becuase the money was flowing in and when things crashed, the Fed would bail them out. This was the exact situation we entrusted the Fed to prevent....but it abused its aurthority supporting the reckless behavior of its banker owners....The Fed is a private shareholder corporation owned by its banks....not the American people.
All of this borrowing and spending created a ponzi like environment and supported an illusory $14 trillion dollar GDP. Everything was fine so long as banks kept lending and the debt could be rolled over. But the banks didn't keep lending....in fact, the FED raised interest rates 17 times, established much tougher bankruptcy laws, and loans started defaulting. Once the loans started defaulting, the banks became even tougher with lending standards.
The family that used to qualify for a $800K home now only qualified for $300K....and prices crashed simply based on the banking systems shifting the lending standard back and forth and back again.
The predictable crash occured with house prices first....SOMETHING THAT HAD NEVER HAPPENED BEFORE BECUASE BANKS HAD NEVER MADE IT SO EASY TO BORROW AND LATER TIGHTENED ON SUCH AN IMPORTANT AMERICAN ASSET.
Millions lost their life savings and millions more lost their jobs in real estate sales, construction, finance, retail etc causing a cascading fountain of Zombulation. Zombulated families could no longer spend and businesses that benefitted from their spending suffered as well creating even more distress.
You can apply the above to commercial real estate, autos, and pretty much every segment of the economy that benefitted from reckless lending practices.....until the banks cut the lending off...then everything crashed.
The biggest beneficiary of the process was government...tax receipts to government about doubled during the boom. But instead of taking the excess cash and paying down debt, it spent and borrowed even more supporting the frenzied spending environment and infecting the citizens with even more debt.
So where are we now, much tighter lending standards and a nation that has accumulated an amount of debt that simply can never be paid...and based on much lower incomes, many can't even service the debt anymore....including citizens, businesses, and government.
THE FED COULD SOLVE OUR CRISIS TOMMORROW IF THEY WANTED TO.......simply restructure the debt in the same fashion they did to the Wall Street Banks. There are a number of mechanisms to achieve this including expedited bankruptcy without destroying a person's credit, refinancing the debt at 1%, 4X higher than the rate being charged Wall Street Banks....or even loaning consumers, businesses, and governments money at 1/4%(just like Wall Street banks) and allow the consumer to purchase treasuries at 3% applying the differences to paying down the debt(just like Wall Street Banks). By being able to service the debt, none of the debt would be toxic and we wouldn't have to bail out the banks.
You see, Bernanke knows he could solve this crisis immediately if he really wanted...he could just do the same thing to the citizens, businesses and government that he did to his banking buddies. But instead, he tries to misdirect the problem by saying he is working REALLY HARD to make credit more available.
When you can't afford to pay your existing debt, more debt at high interest rates doesn't help. Notice how his banking buddies just raised the interest rates on credit cards as we gave them practically free money. Or Avanta just cut off credit to one million businesses. Or what may happen if CIT goes under.
If the FED reduced credit cards rates to 1%...or mortgage rates reduced to 1%, how many loans that are currently defaulting would become current?
Now you know, it is not Fed's goal to fix the economy, in reality, its Zombulation policies are destroying our economy causing tax receipts to government to evaporate.
America has NEVER sustained a protracted period where government tax receipts declined. Couple this with a period where America's economy has NEVER been so dependant on government spending to function, and you can see we are headed for disaster if we continue down this path.
Alstry is not the only one that sees the problem, but few have factored in the importance of government spending on our GDP. Based on the current rate of deterioration, my guess this will become a more important public issue in the next few months...especially with the reduction of public safety officers coupled with a potentially higher crime rate.
Below I have linked Karl Denninger's view outlining the problem.
So now you have it, the solution to this mess...SIMPLY RESTRUCTURE THE EXISTING DEBT......a debt that the FED recklessly infected our society with.....a debt load that is destroying our economy for every American....and debt load that if not restructured soon....will Zombulate our entire nation.
You would almost think, looking back at the whole picture with the benefit of hindsight, and seeing how easy this was to prevent, how only the Wall Street Banks were bailed out, and how easy to fix.....was Zombulation Nation the plan all along?
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