Thursday, September 1, 2011
Debt Jubilee or Night of Living Dead
Charles Hughes Smith posted a must read essay by Zeus Yiamouyiannis (ZY) that describes to a tee the maladjustments and absolute need for a debt jubilee or reset. He well describes the damaging, dead end track of the current see no evil, hear no evil, speak no evil path. This is one of the first commentators who suggests using the term "fake assets" as superior to "toxic assets". I have always used the economic term "fictitious assets or capital". In his words, "Debt/credit that cannot be paid back is never an asset and is always a hot-potato liability (needing to be foisted to a greater fool to garner “profit” and transaction fees)." He ends with the real solution, " Take our financial junk out of the global attic in boxes, put them out on the front lawn, and see if anyone wants to pay a few bucks for the various items, give away the leftovers to anyone interested passing on the sidewalk, and recycle, donate, or dispose of the rest. It’s a moving sale, and if our economy is going to get moving, maybe we ought to have one.”
In my view because of the issuance of trillions more of these hot potatoes in recent years, the magnitude of fake assets are now at unparalleled levels. This necessitates stranger and stranger schemes to keep the night of the living dead creatures roaming. The latest iteration of these so called "tools" by the Fed, are the ultimate, just the ultimate. Frankly the scientists in the living dead lab really look hard pressed. There is one new scheme whereby the housing agencies are planning on subsidizing another round of refinancing at 4%. Let's see if I have this straight, we replace 5% mortgages on underwater homes, with 4% on underwater homes, and move even more fake assets along to the agencies and the Fed. Then we pretend the problem is solved.
Then comes another scheme whereby the Fed will move out on the duration curve and buy 7-30 year Treasuries and the Government will provide hundreds of billions in fresh longer term debt to meet this phony "demand". So instead of 2.0% yields on debt issued by a country with debt to GDP approaching 100%, this scheme calls for a 1.8% yield on a country with a debt to GDP approaching 110%. That's not a big time fake asset? Talk about the potential for enormous losses once the bubble bursts.
Since there is no longer any income left for traditional securities lending, what should real banks, as opposed to insider broker-dealer racketeers do? About all that is left is to scalp basis points in front of the Fed. The situation is increasingly hollowing out the need for actual real banking, which happens to require yield for both savers and lenders. Savers might as well bury cash in their backyards or vaults, and banks might as well start closing. Judging from the big layoffs in the financial sector some of that "unintended consequence" may be underway.
Politically there so much backlash against this system, that even bankster minions such as the Bernank, Turbo Timmy Geithner, and Presidente Hopium have to act like the gloves are coming off. ZY lays out the sequence of this masterfully. The money is looted and put into the rat lines (step 1). Then the pig men run the delay tactics (step 2) using their hired hands in Congress [Chief Joseph Tar and Feather Award Goes to Judd Gregg].
After cheating as much as possible before enough people notice, comes bargaining (step 3). We are entering this stage now. Since at this stage the bankster kleptocrats are still in power, this takes the form of subterfuge, such as settling the mortgage fraud fiasco with what seems like real money ($20 billion). As I get ready to post, now the NY Times has a story that the US might be pushing for more. On Thursday the Fed actually administered a rare serious hand slap on Goldman Sackers for old sins. We should be alert to the arrival of the final two steps as the event horizon is now quickening. I think the banksters are far too optimistic about the end game. I see a choice between flight or tribunals followed by summary executions as the most likely fates.
1) Denial: Collect 144 billion in bonuses after financial collapse and laugh as not a single trading day loss arises for zombie TBTF banks completely subsidized by governments.
2) Anger: Express false righteousness, indignation, and hubris over even modest/toothless demands/regulations attempted to be placed on them by governments. Exhibit sadistic zeal at being able to simply claim you own and liquidate properties they have no clear title to.
3) Bargaining: Experience dawning awareness that may have just cooked your own gooses as strategic defaults skyrocket, populist demands to prosecute fraudclosure gain traction, and quantitative easing ad infinitum dwindles and fails to keep stock prices artificially aloft. Improvise panicked attempts to "be reasonable" and actually negotiate, once the asset and money flow well runs dry.
4) Depression: Contemplate and realize possible bankruptcy by big banks. Retreat to the Hamptons to hire criminal defense lawyers, and shoulder the abuse of media and contempt of a global citizenry.
5) Acceptance: Trying to regain "good guy" status and avoid criminal prosecution by agreeing to be part of debt forgiveness.