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alstry (< 20)

MUST READ!!!!!!! if you really want to know where things are going



April 22, 2009 – Comments (10)

Denninger has been nailing it right on the head lately........we are mathematically screwed and if we continue down the same road 30-50% unemployment is guaranteed and our healthcare system is bankrupt within 12 to 24 months.  It really is not too hard to understand the math, if you are mathematically inclined, and here is some very good work from someone who gets it....I highly recommend Denninger's blog.

I and others have for nearly two years said that "subprime" was going to be a side show compared to both ALT-A and "Prime" delinquencies on mortgages.

All I can say now is: it's starting.

April 21 (Bloomberg) -- Fannie Mae and Freddie Mac mortgage delinquencies among the most creditworthy homeowners rose 50 percent in a month as borrowers said drops in income or too much debt caused them to fall behind, according to data from federal regulators.

The number of so-called prime borrowers at least 60 days behind on mortgages owned or guaranteed by the companies rose to 743,686 in January, from 497,131 in December, and is almost double the total for October, the Federal Housing Finance Agency said in a report to Congress today.

Of all borrowers who ended up in default, 34 percent told Fannie and Freddie they were earning less money, about 20 percent cited excessive debt as a reason for missing mortgage payments, and 8.1 percent blamed unemployment, FHFA said.

Uh huh.

It isn't over either.

Perhaps in response to this, Freddie Mac's acting head apparently has committed suicide:

Police responded to the Kellerman home after receiving a call from his wife.

Kellermann was 41 years old.

He was named Acting Chief Financial Officer of Freddie Mac in September of 2008. According to Freddie Mac's web site, he had been with the company for over 16 years.

That's sad, but what's at least as equally sad is the number of Americans who have been screwed out of everything, including their homes, over the previous eight years.  Who did the screwing? 

People who knew the mathematical reality of what they were doing but either (1) suspended disbelief and critical inquiry or worse, (2) knew full well what they were doing but figured they'd loot the public (and their firms) and get out with the cashola before the inevitable collapse.

Folks, this leads into what else is going on with "lending" in general: All the banks say they're lending more, but if they truly are, they're idiots.  The truth is likely that they're not, because there is no argument for "lending more" into a slowing economy.

What the crooners simply refuse to accept is that this economic mess is not due to a business cycle or anything of the sort.  It occurred and is continuing because there is too much debt in the system for the amount of earnings capacity that exists, and nothing will fix the economy until that excess debt is flushed out.

That is, these lenders - all of them - intentionally lent money to people who were of inadequate earnings capacity to pay it back.  This didn't just happen at Freddie Mac or Fannie Mae.

It happened everywhere.

We replaced earnings advances with debt.

Well, ok, we tried to replace earnings advances with debt.

See, you can't do that for very long, because debt has to be paid back, at least in theory.  The money you "pull forward" by taking on debt instead of saving it up not only has to come out of your future earnings, so does the interest.  As such the longer this sort of deception goes on the worse the inevitable correction is for the economy.

The policy-makers at the top of the banking system, including Congress and The Fed, are directly responsible for not only willfully refusing to perform their regulatory function to prevent and punish fraudulent lending but in addition intentionally spurring it on!  Alan Greedscam's infamous comments urging consumers to look at taking adjustable mortgages - at a secular low in interest rates, knowing full well that rates had to rise from there - was part of it.  Congress passed laws at the urging of the banking industry, including a law that made it more difficult for consumers to declare bankruptcy and stick lenders with the (just) consequences of poor or no loan underwriting.  We even exempted certain classes of loans (for example student loans) from bankruptcy discharge entirely, thereby goading lenders in that space to make loans completely without regard to ability to pay.

All of this was done for the explicit purpose of goosing "values" - whether those "values" were home prices, the price of college education or the stock market.

But debt-induced "asset inflation" never lasts. 

It can't last, because it is mathematically impossible to add to cash flow requirements while maintaining monetary earnings output as a constant and yet become more wealthy.

But that's what you were sold America - by both bankers and politicians.

You were lied to.

There is only one way to put America back on an even keel. 

The excess debt must be removed from the system.

There are only two ways to remove debt from the system:

Pay it down

Default it

That's all there is for choices.  If the debt cannot be paid down due to the lack of cash flow to do so, the only other remaining choice is to default it, and the sooner we face reality the better off our economy will be.

10 Comments – Post Your Own

#1) On April 23, 2009 at 1:06 AM, alstry (< 20) wrote:

Masturbation Negotiation?

The U.S. Treasury has raised its offer to Chrysler lenders, sources said on Wednesday, as the embattled automaker races to cut its debt and labor costs and reach an alliance with Italy's Fiat SpA by the end of the month.

The automaker has been operating under $4 billion of emergency U.S. government loans and the Obama administration has said that it needs to see those agreements before considering investing up to an additional $6 billion.

Seriously, How Stupid does your government think you are???

We have a bankrupt auto company that taxpayers are pouring billions into negotiating with insolvent banks that taxpayers are pouring trillions into???  No matter what the outcome of the negotiations, the taxpayer eventually pays in the end and the bankers and private equity partners walk away with the hard is it to see that taxpayers are simply negotiating against themselves.

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#2) On April 23, 2009 at 1:08 AM, mliu01 (< 20) wrote:

Face it alstry, Americans not only don't know how to do math. They don't know how physics and chemistry works. That is why they keey buying the lies.

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#3) On April 23, 2009 at 1:24 AM, alstry (< 20) wrote:

The whole thing simply seems so obvious that it is amazing how loud the silence seems to a mute population.....

You have bankrupt banks getting trillions from the government and bankrupt families getting kicked out on the streets and becoming homeless.

It just doesn't make Alstrynomic sense.....especially when most of the naive CAPs players will eventually learn that it will affect 70-90% of the population in the end.

Now, it is just a matter of time, as we watch a mathematical problem play out and hear a population of frogs screaming silently in boiling water.

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#4) On April 23, 2009 at 1:44 AM, therebuilder (< 20) wrote:

Ahh, what you are missing is that this is much worse than you imagine.  But, I think, the government gets it.

If we default all the loans, the banks fail.  If we default all the loans, the entire global economy fails and we're talking about millions or perhaps billions of peole starving to death since we've all moved to cities and forgotten how to live sustainably off the land.  If the banks fail, the American system fails and the global system fails.  If the systems fail, life will very shortly be completely different.

We don't have a gold standard anymore, we have a faith standard.  Once that faith is removed by bank failures (and the FDIC damn sure doesn't have enough to cover a Citi or BOA failure so one of those failing will very likely rip our economy apart and destroy faith in money) everything stops.  Food won't be trucked anywhere because no diesel will be available because no one is going to ship it from where it's drilled to a refinery, no refinery will be running to turn oil to diesel, and no truckers will be driving it to gas stations for food trucks to fill up with.

I'm turning my yard into an organic garden, and I suggest you do the same.  You can't stockpile enough food to last forever, and once the system fails, it's done.

Without money, we have no society.  If the government lets a bank fail the whole world falls apart.  But you won't see that on a Tea Party sign, and Obama can't say it because that alone will kill our faith in the dollar, since the banks are already insolvent.And once it's gone, I can't fathom how faith will return.  It might, but it won't be easy and it won't be soon.  We're very likely headed for either a barter economy or a violent revolution.  The only thing that can stop the violence is if we all start growing food and composting our waste, because fertilizer is petroleum based and there won't be any more of that made soon.

This is not necessarily doom and gloom.  Charles Eisenstien has the perfect response: "What is the most beautiful thing you can do" given the circumstances? The Chinese ideogram for crisis is the same as their ideogram for opportunity, for good reason.  I'm growing food and reaching out. When the system falls you will sustain yourself much longer with a garden than a gun, and much better with harmony and balance than with force.

What can you do?

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#5) On April 23, 2009 at 5:09 AM, alstry (< 20) wrote:

Pretty soon, almost everyone will be liquidating to meet obligations......unfortunately, mathematically most of the money will have been spent to pay back debt and the liquidations will likely yield little as time goes on.....

From the WSJ:

HARTFORD, Conn. -- Financially strapped colleges are angering their benefactors by selling school radio stations, auctioning Georgia O'Keeffe paintings and dipping into endowments for purposes their donors may not have intended.

"Schools are scrambling to find assets they can turn into cash," says Frederic Fransen, an Indiana adviser to big donors who helps them structure gift terms to maximize control. "If you've given something that the university doesn't believe is part of its core mission, those are the first things to go."

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#6) On April 23, 2009 at 11:44 AM, OldEnglish (27.42) wrote:

Sadly, there won't be any default on the debt. The government clearly has every intention of paying it off. Assets are being destroyed so rapidly that the money printers can't offset them even with trillions. That will eventually change. It will take a few years, but the goal is obvious: devalue the currency to annihilate debt, public and private. -And the savings of the minority of Americans who bothered to keep any.

The world will eventually get the point. It may take TARP V, permanent extension of government benefits, and dozens of major companies on endless life support but the objective will one day be achieved. 

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#7) On April 23, 2009 at 2:02 PM, bostoncelitcs (47.76) wrote:

If people don't think there are HUGE sums of "private" capital just waiting on the sidelines they are greatly mistaken.  That is why any "bailout" of the US automakers with taxpayer money is a travesty......Mr. Koch whose family "promoted " the Tea Party's should put his money into buying either GM or Chrysler for the good of American capitalism and the US of A. 

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#8) On April 23, 2009 at 8:39 PM, jester112358 (28.12) wrote:

The key concept that every person needs to grasp is that debt is nothing more than a lien on future income or cash flow.  Only an idiot or corrupt lender would lend funds to buy overpriced assets for a person with no employable skills to pay back the loan with future cash flow.  But this is exactly the fraud that occurred too often.  This is an excellent post-I greatly enjoy all your posts!

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#9) On April 26, 2009 at 4:36 PM, OctoStalin (33.74) wrote:

Alstry I bet the by 2017, the s&p will be higher than in 2007.

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#10) On April 26, 2009 at 4:37 PM, OctoStalin (33.74) wrote:

Alstry, I bet you that by 2017, the s&p will be higher than in 2007.

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