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alstry (35.96)

Finally!!! Alstry provides the Solution

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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?

 

17 Comments – Post Your Own

#1) On August 02, 2009 at 9:56 AM, alstry (35.96) wrote:

In case you want to know what motivates Alstry...the answer is simple.

His love of America and its principles, liberties and freedoms articulated and memorialized by our Founding Fathers in the Consititution.

Too many times in history, people have watched horrible events occur and looked the other way.  By not addressing the issue, what could have been contained converted into a disaster.

Look back in history and ask yourself what if.....what if people just took a stand instead of looking the other way?

 

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#2) On August 02, 2009 at 10:22 AM, alstry (35.96) wrote:

Unless we stop the Zombulator, there will be no "safe zone"

That prudent financial bent, matched with the high prices paid for crops and energy in the past few years, has largely protected Goshen County and a core group of several hundred other counties in 10 states from the recession's chokehold. The Associated Press Economic Stress Index shows they make up a "safe zone" that covers a long swath of middle America, from the Great Plains south to Texas.

But the safe zone is shrinking. Energy production and prices are sliding, especially for coal and natural gas. Crop prices are dropping, too, as there's less demand in Asia for American wheat, corn and soybeans. There were 800 counties in the safe zone a year ago, a number that dropped to about 300 counties in May and slid further to 200 counties in June.

"To say that you're doing pretty well is just to say that it's the best-looking puppy in a pretty ugly litter," said Wyoming Gov. Dave Freudenthal, who recently imposed a 10 percent budget cut across his state's government in response to falling tax revenue from the energy sector.

http://finance.yahoo.com/news/Slice-of-central-US-safe-from-apf-156411719.html?x=0&sec=topStories&pos=4&asset=&ccode=

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#3) On August 02, 2009 at 10:27 AM, alstry (35.96) wrote:

NOT A WORD ABOUT RESTRUCTURING DEBT!

WASHINGTON -- Treasury Secretary Timothy Geithner said that while there were signs that the recession was easing, a key element to getting the U.S. economy back on track was to bring down the country's surging deficits.

"We will not get this economy back on track, recovery will not be strong enough to sustain unless we can convince the American people that we're going to have the will to bring these deficits down once recovery is firmly established," he said on ABC News's "This Week With George Stephanopoulos" which aired Sunday. "And that's going to require some very hard choices."

Asked if that meant raising new revenues, presumably through taxes, Mr. Geithner said, "Well, we're going to have to look at – we're going to have to do what's necessary."

If most of the country can't pay current outstanding bills, how do you expect them to pay more taxes?

The Zombulator is turned on HIGH!

If we restructured debt, hospitals could pay their staff, school districts could pay teachers, cities could pay police officers.

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#4) On August 02, 2009 at 10:59 AM, alstry (35.96) wrote:

JUST A FLAVOR OF THINGS TO COME...IF WE LET THE FED CONTINUE TO ZOMBULATE US....

Jefferson County officials earlier this year predicted severely reduced services if the county's financial crisis was left unsolved. That day arrives Monday.

Residents face long lines to renew car tags and driver licenses, to record deeds and mortgages, and will wait weeks for an inspector to check development and construction projects.

Should a storm rip through the county, damaging highways and bridges, county crews will not be able to make repairs to most roads because the manpower will not be available, department officials said.

 "It will be catastrophic," Commissioner Jim Carns said. "It will change county government as we have known it up to this point. It will not be pretty."

On Saturday, county officials said 965 workers were placed on unpaid administrative leave, one step needed to slice $75 million from the budget to make up for the loss of the occupational tax and business license fee.

http://blog.al.com/spotnews/2009/08/jefferson_county_braces_for_th.html

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#5) On August 02, 2009 at 12:25 PM, Mary953 (73.35) wrote:

Alstry,

This is an excellent post.  May I request one thing?  For those new to CAPS who have not or will not be going through all of your previous posts, would you explain Zombulator/Zombulation?  To your regular readers, it is a shorthand.  To your newer readers, it is confusion.  You lead them to the brink of knowledge and then, with an unfamiliar term, push them over the cliff.  It is good to see the insightful analytical Alstry back.

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#6) On August 02, 2009 at 12:38 PM, alstry (35.96) wrote:

Mary,

Why don't you do it, Alstry is exhausted and is going to go out and play with his kids.

Your help in saving our nation from a systematic shut down is appreciated in advance.

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#7) On August 02, 2009 at 1:36 PM, alstry (35.96) wrote:

SAN FRANCISCO (MarketWatch) -- Higher-than-expected unemployment figures are the result of businesses reacting more strongly than anyone had predicted, White House National Economic Council Director Larry Summers said on NBC's "Meet The Press" Sunday.  "Most of the surprise increase had already taken place by March, and you can hardly hold the administration accountable for that," Summers said. "It turned out that businesses were even more scared than we realized; and, therefore, relative to past recessions, as demand for their products declined, they were much quicker to lay people off than they, than they have been."

???????????????????????????????????????????????

Mr. Summers,

You don't think the fear has anything to do with the fact that sales to new homebuilders is down over 80%.......or sales to steel companies are down over 60%........or sales to auto companies are down over 50%...or after this Fall, much of current commercial construction is coming to a grinding halt?

Until America's debt is restructured, America will continue shutting down.  How long do you think starving Americans will remain calm as they watch Larry keep giving Wall Street trillions while their children remain hungry?

Especially, if a lot of those starving people are fired police officers trained to use a gun?

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#8) On August 02, 2009 at 1:50 PM, alstry (35.96) wrote:

“About 12.07 percent of mortgage loans were delinquent or in the foreclosure process during the quarter, according to a survey by the (Mortgage Banker’s Association). That is the highest level ever recorded by the survey, which has been conducted since 1972. It is up from about 8 percent during the first quarter of 2008.

???????????????????????

1 in 8 mortgages delinquent!  Imagine one in eight homes being up for sale in your neighborhood on a distresses basis?  And people are saying the housing crisis is over...my friends, it has not yet begun.

Until we restructure debt and start driving job growth, soon it will be 1 in 4 mortgage delinquent and unemployment will be at 30-50%.

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#9) On August 02, 2009 at 2:35 PM, Mary953 (73.35) wrote:

Sorry Alstry.  I don't know what it means either.  But you have your priorities straight if your kids are at the top of the list!  As Tigger would say, TTFN!

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#10) On August 02, 2009 at 5:03 PM, falang1 (96.18) wrote:

One of the best posts on here.  It's all out there, but put together nicely.  My distressed home just sold...for exactly half of what I paid for it.  I still think they overpaid.

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#11) On August 02, 2009 at 9:03 PM, MGDG (35.54) wrote:

Alstry, restructuring debt or converting debt to equity seems to be the path to take. We cannot put out the fire by adding more fuel. It doesn't look as if this is even being considered by our elected officials, unless your a financial institution and even then only one in which they think is worth saving.

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#12) On August 04, 2009 at 11:41 AM, ReadEmAnWeep (77.20) wrote:

"Too many times in history, people have watched horrible events occur and looked the other way. By not addressing the issue, what could have been contained converted into a disaster."

Unfortunately, I think that apathy and ignorance best describes the general people today. As long as it doesn't affect them in a completely obvious was, then they don't care.

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#13) On August 07, 2009 at 11:39 AM, HighRisk41 (38.10) wrote:

How long do you think starving Americans will remain calm as they watch Larry keep giving Wall Street trillions while their children remain hungry?

Especially, if a lot of those starving people are fired police officers trained to use a gun?

 

I'm thinking were gonna start to see this before the end of the year. America is waking up people like you are getting people thinking. Government wont fix this problem, the Fed sure as hell has no intentions on fixing it. Either the American people do something or we can kiss America as we know it good bye. 

 +1 from me! 

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#14) On August 07, 2009 at 10:02 PM, QualityPicks (34.57) wrote:

I loved your solution of restructure our debt at 1% while getting paid 3% on our savings, really well put. But even that is nothing compared to the deals the banks are getting. This is a great post, thanks Alstry.

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#15) On August 08, 2009 at 1:14 AM, LydiaVorst (< 20) wrote:

QualityPicks wrote:

"I loved your solution of restructure our debt at 1% while getting paid 3% on our savings, really well put. But even that is nothing compared to the deals the banks are getting."

I agree with QualityPicks that alstry has some great ideas ---

"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".

However, these solutions are not even being discussed at the current time.

What if people began taking their money out of banks in protest of the government's current policies that we are paying for with our money (via taxes)? We can't legally stop paying taxes, but we can withdraw our money from the bank .

Does anyone think that the banks and the government might start listening to the people and perhaps institute some of alstry's ideas if people started withdrawing their deposits? Or what if a large percentage of people who are capable of paying their bills simply didn't make their mortgage payment or pay their credit card for a month?

What is it going to take for the government to stop spending our money on "solutions"  (ie, cash for clunkers) that are making this mess worse? What can we the people do?

Thomas Jefferson wrote:

 “To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.” Thomas Jefferson

I believe this is exactly what most people are doing right now, feeling that they have no choice

Are there any choices, short of waiting until congressional elections in 2010 when I fear it will really be too late for the dollar and for our economy?

 Is it possible that a few brave and thoughtful people can make a difference and stop this country from deteriorating into chaos which will surely come as,  HighRisk41 wrote:

How long do you think starving Americans will remain calm as they watch Larry keep giving Wall Street trillions while their children remain hungry?

Especially, if a lot of those starving people are fired police officers trained to use a gun?

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#16) On August 08, 2009 at 1:35 AM, LydiaVorst (< 20) wrote:

That Timothy Geithner --- he's got such a crazy sense of humor!

This just in: http://www.reuters.com/article/newsOne/idUSTRE57706N20090808

Can anyone explain how Congress's raising the $12.1 trillion statutory debt limit (which could be breached as early as mid-October) will enable "citizens and investors here and around the world (to) remain confident that the United States will always meet its obligations?"

And, still being  his crazy, funny self,  "Geithner urged Reid to not let politics hamper U.S. credit-worthiness."

um, I think that's already happened...

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#17) On August 08, 2009 at 2:06 PM, LydiaVorst (< 20) wrote:

For definitions of zombulation:

See:

 Zombulation Summarized:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=236584&t=01002130057764754273

A Quick Lesson in Zombulation

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=228076&t=01002130057764754273

and

Anatomy of a Zombulated America

alstry also has a weblog:

http://alstry.blogspot.com/

Mary953 wrote:

"Alstry,

This is an excellent post.  May I request one thing?  For those new to CAPS who have not or will not be going through all of your previous posts, would you explain Zombulator/Zombulation?  To your regular readers, it is a shorthand.  To your newer readers, it is confusion.  You lead them to the brink of knowledge and then, with an unfamiliar term, push them over the cliff.  It is good to see the insightful analytical Alstry back."

Alstry has written,

"Zombulation occurs when you run out of savings and access to credit, or government taxes 100% of your income and assets, you have been Zombulated......in either case, you are broke."

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