Honey, I Blew Up the Mortgage!

I don't think it's quite as simple as that. I don't know if it's been reported in the leftist weenie newspapers, but the Feds have arrested many unscrupulous mortgage brokers, some 300 in Arizona alone. So many people were conned into refi's, to fleece them for fees and points. Be calm, stand back, and watch for the outcome.

...Jim Thompson

Many people were encouraged to lie on their mortgage applications. That's not 'being conned'.

If you look at the big picture it doesn't really matter. It's not going to stop people in the USA suffering some serious economic pain in a few years.

The USA has had a trade deficit since the 1970's.

You have been paying for oil, chinese TV's and DVD players with pieces of paper promising payment.

The US government can print as many dollars as they like, so why have they borrowed trillions of dollars by issuing treasury bills?

The answer is that printing money now creates inflation now. Printing money to pay T-bills in the future creates more inflation long after the current politicians have lined their pockets and gone.

The foreign central banks and oil selling country holding t-bills are on the brink of realising that they have swapped goods for near worthless paper.

When that confidence trick unwinds the USA has the choice of serious inflation or defaulting on their debts. Plenty of people say that can't possibly happen, but a bit like the estate agents who assured people that house prices would never going down in every property boom this century, they will be proved wrong.

The financial people believed that sovereign countries never defaulted on their debts until Russia defaulted and LTCM had to be bailed out to stop the global financial system having big problems.

The amount of money going around in circles in derivatives contracts is larger than the GDP of the whole world. That money has been recorded as a profit on the accounts. Remember the massive profits that Enron reported, which one day turned out to be a fantasy?

When the derivatives contracts start to unwind and the trickle of hedge funds going bankrupt turns into a flood the property downturn and "credit crunch" will seem insignificant.

If the USA has hyperinflation then the morgages that people can't pay will cease to matter.

If they default on their debts then oil will be much more expensive for them and the flow of consumer goods like cheap chinese DVD players will stop.

Either way the USA's standard of living will plumet. The people with their McMansions will suffer wether or not they are bailed out of their mortgagues.

I'm not a resident of the USA so I'm more concerned about the global effects.

On one hand I think stupid people should suffer so I think the countrys that hold billions of the USA's debt should suffer.

On the other hand it will be nice to see republican assholes like Jim Thompson suffer. It's people like him who have built a country where people generally need a car to get from their house to the shops so it will really hurt when they have to reduce their profligate oil consumption.

Bob

I don't think it was that so much as being conned. I was actually approached by a broker offering a "no documentation" re-fi mortgage. Since I already had a nice low interest rate, I declined.

...Jim Thompson

Hate to disappoint you...

John

they probably are

_When_ has the US defaulted on debts? We forgive plenty and will likely bail somebodies butt out when the next natural disaster or 'civil unrest' occurs.

G=B2

That list just lists government debt. The USA has a huge amount of private debt as well.

So the USA is not in as bad a state as Zimbabwe and some other countrys, it's still going to be painfull.

The US standard of living is based on increasing debt. When the debt can't be increased any more somthing has to be cut.

Treasury bill yield is being increased to keep money rolling over into new t-bills instead of them being cashed in. Just storing up more inflation for the future.

David Walker resigned as comptroller of the US government in february after causing minor embrassment by going around giving talks saying the USA's debt and policys of spending more money in future are unsustainable. The politician's didn't want to hear it, they want to spend now, be popular by the giving the people luxurys they can't really afford and leave the debt for someone else to deal with.

The aging population of Europe and Japan causing a labour shortage is a red herring.

We live in an industrialised society, we don't need lots of labours working in the fields to produce food. The UK govenment seems to be engaged in mass manipulation to reduce the unemployment figures, employing hundreds of thousands of useless paper pushers in the health service and creating all sorts of schemes to keep the ill-educated youth off the unemployment figures.

If the number of paper pushers drops I don't think it will matter, their jobs are really creating any value anyway.

Most of the jobs requiring physical effort like picking potatoes and constructing buildings are done by immigrants anyway.

Bob

"This American Life" radio program did a hour on "The Global Pool Of Money". Interesting study of how and why the industry ultimately moved to the NINA (No Income, No Asset) loans. Ultimately, it was about those with tons of money looking for a safe investment.

B. Farmer

It doesn't really even list that. It only lists the amounts that the governments have borrowed. It doesn't include all the other promised payments that haven't yet come due. Many, perhaps all, countries have huge amounts of outstanding debt beyond those figures.

The US devalued it debt under Nixon. Before Nixon a dollar was worth a fixed amount of silver. Nixon unhooked the money from silver because there wasn't enough silver to make good on the debt.

Since that point, anyone accepting a US dollar knew that it was a fiat money debt they were accepting.

I note that the map and chart disagree with each other.

Questions the accuracy of either.

Neither gives an indication actual volume of debt, per capita debt, or trends in same.

The unsettling thing about the 'economy', is it's tendency to react to perception, rather than reality. A confidence trick.

RL

...and what the hell is "safe" about investing in FRAUD, GREED, and CORRUPTION?

For those so inclined, here is the link to the program. You can listen for free:

Quick synopsis: Essentially the American Mortgage market was considered safe. Values were rising year after year, economy was good, and home owning was an American tradition. With an ever growing pool of worldwide money looking for a good return, this seem like a good investment opportunity.

Only problem is that no one really wants to hold an actual mortgage, so mortgages were purchased and pooled together and shares in the pool sold to investors. As with any pooling, the risk decreases. This worked quite well and the demand for this type of investment increased. More mortgages were needed to meet the demand. As the demand went up, those making and selling the mortgages relaxed their requirements, ultimately ending up with NINA (no income, no asset) loans.

When the pools started showing some weakness, then they were again pooled into CDO - Collateralized Debt Obligations. This minimized the overall risk. Any one pool could fail and not radically affect the return of aggregate.

The greed was essentially that of those who granted and then sold the mortgages and those who packaged them into pools. The Global Pool of Money was just the end customer looking for a good safe return.

B. Farmer

end

Yep.

But I truly think that a deep recession will be a good thing... the leftist loonies will learn their lesson they way I like them to learn... the hard way.

Can't you just see them all out riding their bicycles to work... to dig ditches ?:-)

...Jim Thompson

mortgages

end

My bet is that the ones doing the mortgages, packaging, and pooling were not leftist weenies, but those of a more rightist conservative leaning, e.g. Wall Street suits.

A deep recession does let the gas out of the balloon. People do redefine their values in tough times. In a drought, the river will run down, but the stream runs dry. Good time to have money. Tougher time if you don't

B. Farmer

mortgages

the end

It readjusts wage ratios to what the market will bear, not what the leftist loonies want to impose as "minimum wage".

Personally a recession will be good for business, every time there is a downturn, engineers get laid off and consultants get hired... we represent no overhead or hidden costs to contend with... during the Carter era I was paying over $100K in income taxes... last year I paid $1878.

...Jim Thompson

It uses debt/GDP, which seems reasonable to me. Per capita debt ignores productivity; a person with a high income is less threatened by a $10,000 debt than a person with little income.

Feel free to do your own research. Let us know if you find evidence that the Wiki table is incorrect.

John

We also need to take step to prevent a whole new batch of these folks in the future. Since these deals are often more complex than the borrower can be expected to understand, we need some regulation that pushes the risk towards the more expert. I think that doing away with the selling of the mortgage is too extreme but keeping some of the risk at the original seller needs to be done. The down side is that it would make all mortgages a bit harder to get.

We should do them the courtesy of cutting them down and burying them in the potters field. Dead bodies hanging around tend to be depressing.

Change "stick us" to "stick our children"

Well, there could be a problem. At least, over here you would have a problem. A house represents a pawn to secure the loan. If the value of the house drops, then the loan isn't covered enough. This may cause the bank to require the home owners to reduce the loan.