MORE CORPORATE BLAME GAMES

About eight months ago - in "Corporate America's Blame Game" - I discussed how our financial services sector is busy suing each other because no one wants to accept responsibility, for anything. Well, guess what? The finger pointing in corporate America continues.

First up, we're learning that Deutsche Bank has shoved at least a billion dollars in toxic loans on to the books of the U.S. government, in the process shifting responsibility and blame on to the government for bad loans that they originated (their argument works like this, "If the government insured it, it's their fault").

Then we hear about our taxpayer bailed out banks illegally evicting military families from their homes, in the process claiming that they were both a "painful aberration" and an oversight in bank practices - ignoring how the industry created the "aberration" environment by deliberately overworking and taking shortcuts on hiring people to properly assess troubled borrowers' home loans (earning $20 billion in savings in the process).

Now we see the banks raking in billions of dollars acting as bad neighbors and slumlords because of their claim that they aren't legally responsible for maintaining their properties, in the process shoving the responsibility on to hard-to-prosecute servicers of their loans.

Making matters worse, is that all of these taxpayer bailed out parasites are hiding behind lobbyist-driven negotiations, and taxpayer funded legal infrastructures to avoid responsibility for their questionable activities.

At the end of the day we end up with one simple truth: The banks are not responsible for anything.

And the big banks wonder why America has lost faith in corporate America and in the financial services sector (only 25% of Americans trust the banks to do the right thing, a drop of 46% points).

Simply put, the banks are demonstrating that they have no sense of responsibility, shame, or irony.

They just have our money.

- Mark

TAXPAYERS IN HOUSING PURGATORY ... BUT SCREW YOU ANYWAYS

While America's financial institutions make their way through record profits and bonuses - made possible by trillions in government guarantees and taxpayer backed bailouts - millions of distressed homeowners are forced to sail the high seas of housing purgatory.

Matters are made worse for homeowners by financial institutions who are saving billions by dragging their feet on providing adequate service to distressed homeowners.

So, how much does dragging their feet save America's bailed out financial institutions? By not upgrading their procedures, by not hiring more workers, and by not making necessary loan-processing adjustments Bank of America alone has saved more than $6 billion. Wells Fargo, JPMorgan, Citigroup, and Ally have saved billions as well, according to a confidential presentation prepared by the Consumer Financial Protection Bureau (CFPB).

Overall, by delaying applications and providing shoddy service, the banks have saved about $40 billion. The impact has been predictable. Delinquencies and foreclosures have soared, while distressed homeowners, who might otherwise be prime candidates for payment reductions, aren't getting loan modifications.

But all is good for America's banks because - as I've pointed out ... over and over and over again - the banks are able to take the contract you walked away from, and get almost face value for them (BofA is especially good at this). Bonuses are had by all. You, on the other hand, can do little as your home life and credit scores are wrecked ...

... all of which is good for the big banks, but cost you in the long run.

Additional concerns made worse by banks dragging their feet include:

* The CFPB estimates that there are about 12 million U.S. homeowners underwater (about 23 percent), most of whom are not delinquent. Of those, nine million would be eligible for proposed principal-reduction programs.

* About 6.9 million homeowners were either delinquent or in foreclosure proceedings through February 2011.

* Underwater homeowners owe $751 billion more than their homes are worth. This number is made worse by the fact that ...

* Home prices continue to decline, and reached their lowest levels since 2003, according to the National Association of Realtors.

* With millions of homeowners in housing purgatory purchases of new U.S. homes dropped last month to the slowest pace on record, according to the Commerce Department.

The incredible thing is that fixing many of these problems would cost a fraction of the trillions it has cost U.S. taxpayers to bail out Wall Street. Specifically, lowering total mortgage debt for three million homeowners who are underwater by 15 percent would cost about $135 billion (or about what Wall Street's top 25 publicly traded banks and security firms paid out in compensation and benefits in 2010).

So, not only did America's biggest financial institutions get trillions in taxpayer guaranteed money, but they have no obligation to help their taxpaying customers stabilize their housing situation. Nice.

And why should they? They got their money. They can afford to wait (and make money doing so) as American taxpayers are slow-bled out of their homes.

So screw you American taxpayer.

- Mark

P.S. If you want to help do something about this ... and you're looking for a job ... and would like to work for the newly created Consumer Financial Protection Bureau (CFPB) ... and have experience in finance and auditing take a look at this site.

WALL STREET GETS TRILLIONS ... MAIN STREET STAGNATES (yawn)

With corporate America registering record profits (again), have you ever wondered how much money Wall Street and America's moneyed elite have taken away over the past thirty-plus years? Well, wonder no more. Check this out ...

A little over ten months ago I wrote about the failures of economic policies that have promoted deregulation, tax breaks for the rich, and debt driven growth. What we've ended up with is a two-tiered casino economy that is debt ridden and dependent on favorable legislation to survive. In the financial sector the market players who thrive in this economy shun wealth creation built by hard work and discipline and depend on outlandish gambles regularly backed by bailouts to extract wealth from the economy.

Market bailouts, dating as far back as the 1970s, and favorable legislation have done much to prop up profits and shift wealth to Wall Street and America's financial aristocracy.

For example, and most recently, Wall Street's claims on wealth have exploded and depend on political favors. These favors range from allowing mortgage bankers to make a mockery of property rights (MERS), to the Obama administration's bungled attempts at creating a soft landing for the banks in the housing sector (HAMP), to unfunded trillion dollar guarantees and record bailouts (TARP) for Wall Street and their pampered clients.

Main Street's share of income and wealth, on the other hand, has either stagnated or collapsed as Wall Street's quiet coup of policy making in America has helped block reforms that might protect the American taxpayer.

The results have been predictable and, if we look at claims on the money supply, are easy to track. Specifically, if we look at the claims on money made by Wall Street (M-3) over the past 40 years versus the claims made by Main Street (M-1) we see something rather interesting ...

_________________________________________________________

Demands on U.S. Money Supply (select years)
_________________________________________________________
Year       M-1                M-2                 M-3 
_________________________________________________________
1972          $249 billion              $802 billion               $886 billion
1974          $274 billion              $902 billion               $1.070 trillion
1975          $287 billion              $1.017 trillion            $1.170 trillion
1984          $551 billion              $2.312 trillion            $2.991 trillion
1994          $1.150 trillion           $3.498 trillion           $4.370 trillion
2002          $1.219 trillion           $5.801 trillion           $8.568 trillion
2003          $1.306 trillion           $6.062 trillion           $8.872 trillion
2004          $1.376 trillion           $6.422 trillion            $9.433 trillion
2005          $1.375 trillion           $6.692 trillion           $10.154 trillion
2006          $1.367 trillion           $7.036 trillion           $10.299 trillion
2007          $1.367 trillion           $7.447 trillion                  N/A
2008          $1.600 trillion           $8.108 trillion           $13.835 trillion*

03-09         $1.577 trillion           $8.110 trillion                  N/A
04-9           $1.608 trillion           $8.364 trillion           $14.8 trillion*
12-09         $1.696 trillion           $8.542 trillion                  N/A
11-10         $1.832 trillion           $8.804 trillion                  N/A

_________________________________________________________
Note I: In very simple terms M-1 is the category we use to measure what you and I have in our pockets and in our checking accounts. Essentially M-1 represents what Main Street has available to spend. Without getting into the details, M-3 represents what Wall Street spends or claims from the U.S. money supply. For more on money and how we categorize it click here. 
Note II: Keeping track of M-3 (as a data category) was suspended as a "cost saving" measure by the Bush administration in 2006. I discuss this in Chapter 12 of my book, "From Deregulation to the Mother of all Bailouts" in The Myth of the Free Market.
Note III: * denotes "unofficial" M-3 tracking sites. Click on the links.
_________________________________________________________

Specifically, the claims on money by America's biggest financial players have soared (M-3), and went from a factor of roughly 3.5 times what Main Street claimed (M-1) in 1994 to 7.5 times in 2006 ... to 8.6 times in 2008 ... and a whopping 9.25 times by April of 2009.

So, what does all this mean?

First, it means that instead of running parallel to each other (at a historical ratio of 3.5 to 4 times greater) like this  =, the gaps between what Main Street has (M-1) and what Wall Street claims (M-3) now diverge like a sideways chevron like this < . This development is possible only because Washington has consistently bailed out Wall Street's ill-advised activities over the past 30 years.

Second, it helps us see that the bailouts, guarantees, and other market programs were never designed to save distressed homeowners, or the American taxpayer. Instead, favorable legislation and trillion dollar bailouts - which actually began in the 1970s and 1980s - have always been designed to keep money pumping into Wall Street.

Finally, it means that the earnings and income gains of Wall Street, and America's biggest market players, are not tied to the mythical "invisible hand" of the market. From favorable legislation, to tax breaks and tax write-offs, to deregulation, globalization, and the constant attacks on unions and minimum wages, the earnings and wealth gains that America's wealthiest classes have seen over the past 30 years have come off the collective backs of America's middle class.

Don't believe me? Check out personal debt loads in America. In fact, take a look at what has happened to personal obligations and government debt loads over the past 30 years.

At the end of the day, the reckless gambles made by the high rollers on Wall Street have been rewarded, under the guise of the saving the system, while Main Street is forced to absorb the costs of successive bailouts and mounting deficits. 

- Mark

SYSTEMIC CRIMINALITY AND CIVIL FRAUD, OR BUSINESS AS USUAL?

President Obama did not sign legislation that the Senate passed with a voice vote last week. The bill would have allowed banks to speed up home foreclosures by diluting and removing notary due diligence requirements that are supposed to be carried out during the mortgage and foreclosure process.

While the banks and mortgage industry claim the primary goal of the proposed legislation was to facilitate "interstate commerce" the reality was quite different. Simply put, the bill would have enabled the nation's largest banks to push people out of their homes quicker by allowing banks to cover up deceit and fraud during the loan origination and foreclosure process.

While it is good news (for now) that President Obama did not sign the bill into law, this piece from MSNBC's Dylan Ratigan explains why our mortgage and real estate industries are now facing a legal mess. In a few words, those involved in financing and servicing mortgages are trying to hide the fact that they didn't care about qualifications, and did a piss poor job of documenting loans that they subsequently dumped on the American taxpayer federal government after 2008.

Worse, as Ratigan points out, there are a lot of people trying to cover up "systematic criminal and civil fraud at the highest levels of America's banks and in its political corridors."

Put another way, thanks to Wall Street and Washington the American taxpayer is getting the shaft, yet again.

- Mark

THIS IS WHY OBAMA'S IN TROUBLE ... MAIN ST. IS REELING, WALL ST. IS CLUELESS

QUESTION: What do abysmal employment numbers, rising poverty levels, collapsing home prices, evaporating middle-class wealth, a forgotten Main Street, white pity rallies and, finally, the emergence of a whiny elite class have in common?

ANSWER: They all help us understand why the Democrats have a hill to climb this November, and why this nation's troubles may be just beginning.

Let's take a closer look ...

ON THE JOBS FRONT, former Labor Secretary Robert Reich reports:

The Labor Department reports [in June] that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record. More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.) Of the small number of jobs created by the private sector in May, many came from temporary help services ...

... The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories) ...

ON THE POVERTY FRONT, via the NY Times, the Census Bureau reports:

Forty-four million people in the United States, or one in seven residents, lived in poverty in 2009, an increase of 4 million from the year before, the Census Bureau reported on Thursday.

The poverty rate climbed to 14.3 percent — the highest level since 1994 — from 13.2 percent in 2008. The rise was steepest for children, with one in five residents under 18 living below the official poverty line, the bureau said ...

... For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050.

Things could be worse, except for ...

Given the depth of the recession, some economists had expected an even larger jump in the poor. Expanded unemployment insurance and a rise in the number of families doubling up helped temper the trend, said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin.

“A lot of people would have been worse off if they didn’t have someone to move in with,” said Mr. Smeeding, noting that in a typical case, a struggling family, like a mother with a child, stays with more prosperous parents or other relatives. The Census study found an 11.6 percent increase in the number of such multifamily households last year.

ON THE HOUSING FRONT, Michael David White is reporting:

Data from HousingStory.net predicts a nine percent fall in property prices nationwide in 2010. HousingStory.net is making this prediction "despite positive signals of higher prices including a gain of seven percent nationwide by Case-Shiller 10-City index from its post-crash bottom in April 2009."

So, why all the doom and gloom for the housing market? Part of the story is explained because of the lagging jobs and poverty picture painted above. But the real key is tied to historical projections that were broken by the bubble market starting in 2000. By using pre-bubble trends that predate 2000 it follows that housing prices will continue to fall.

This is especially since government sponsored home ownership programs are either ending, or not going so well (the Making Home Affordable Program, is especially a disaster because the details were left in the hands of the banks).

ON THE COLLAPSING NET WORTH FRONT, via Huffington Post we see that the Federal Reserve is reporting:

Americans' net worth plunged in the second quarter of this year, new data from the Federal Reserve show, erasing the gains of the previous two quarters and adding evidence to the argument that the economy has entered a double-dip recession.

The net worth of households and non-profit organizations dropped $1.52 trillion during the period from April 1 to June 30 of this year, according to the report released Friday. The new figure, $53.50 trillion, represents a 2.8 percent decline from the previous quarter.

The net quarterly loss, the data suggests, came from Americans' losses in the sagging stock market. Equity shares owned by households and non-profits tanked in the second quarter, dropping $1.88 trillion or 11.2 percent to $14.87 trillion from the previous quarter. The second quarter figure went down past the territory of 2009's third quarter ($15.32 trillion), almost to the range of the 2009 second quarter ($13.06 trillion), when equity was just starting to rise from its low of $10.94 trillion in the first quarter of that year.

ON THE "FORGETTING" MAIN STREET FRONT, as I pointed out after the Democrats lost the U.S. Senate seat in Massachusetts, Main Street is rightfully pissed off because:

1. President Obama rewarded Wall Street for their incompetence, while doing little to nothing for Main Street.

2. President Obama didn't push Congress when it came to allowing cheaper medicines in from countries like Canada (there goes the elderly independent vote).

3. President Obama made it look like he didn't really want a single payer system, or a public option, both of which he pushed for on the campaign trail. The base is uninspired.

4. Unemployment is hovering around 10% after the Obama administration said it wouldn't hit 10%. 

5. After the House passed foreclosure legislation, which would have helped stem record foreclosures by allowing bankruptcy judges to rewrite mortgages, it died in the Senate. After going to bat for Wall Street, President Obama did nothing to help push it through the Senate ... The message is clear, "You're on your own Main Street."

6. President Obama's Making Home Affordable plan is being undermined by banks, who have Federal trillion-dollar guarantees and aren't in any hurry to negotiate with distressed homeowners. Sitting by as homeowners get kicked out of their homes by the very banks that created our mess is no strategy for winning votes.

ON THE WHITE PITY / "WHINY" BILLIONAIRE FRONT, David Frum and Les Leopold report:

Former Bush speechwriter David Frum called attention to the comments of Chris Hitchens, who referred to  Glenn Beck's recent rally in Washington DC as the Waterworld of White Pity.

At the last “Tea Party” rally I attended, earlier this year at the Washington Monument, some in the crowd made at least an attempt to look fierce and minatory. I stood behind signs that read: “We left our guns at home—this time” and “We invoke the First Amendment today—the Second Amendment tomorrow.”

But Beck’s event was tepid by comparison: a call to sink to the knees rather than rise from them. It was clever of him not to overbill it as a “Million”-type march (though Rep. Michele Bachmann was tempted to claim that magic figure). The numbers were impressive enough on their own, but the overall effect was large, vague, moist, and undirected: the Waterworld of white self-pity.

Then we have Les Leopold pointing out how our bailed out billionaires think they deserve more tax breaks (or a medal) for their greed and stupidity. They are now whining about being asked to pitch-in some of their government escorted (or taxpayer subsidized?) profits so that the larger American economy can recover.

While 43.6 million Americans live in poverty, the richest men of finance sure are getting pissy. First Steve Schwartzman, head of the Blackrock private equity company, compares the Obama administration's effort to close billionaires' tax loopholes to "the Nazi invasion of Poland."

Then hedge fund mogul David Loeb announces that he's abandoning the Democrats because they're violating "this country's core founding principles" -- including "non-punitive taxation, Constitutionally-guaranteed protections against persecution of the minority, and an inexorable right of self-determination." Instead of showing their outrage about the spread of poverty in the richest nation on Earth, the super-rich want us to pity them?

Why are Wall Street's billionaires so whiny? Is it really possible to make $900,000 an hour (not a typo -- that's what the top ten hedge fund managers take in), and still feel aggrieved about the way government is treating you? After you've been bailed out by the federal government to the tune of $10 trillion (also not a typo) in loans, asset swaps, liquidity and other guarantees, can you really still feel like an oppressed minority?

Soaring unemployment, rising poverty levels, collapsing home prices, evaporating middle-class wealth, broken promises, pathetic white pity rallies, and a whiny elite class that think they've suffered enough ... All of these developments help to explain why the Democrats find themselves facing a pissed off electorate in November.

To be sure, this is exactly how the Republican Party wanted this electoral season to play out. Why else would they have become the Party of No? The GOP clearly understands that it's hard to reward a party when their policies helped bail out Wall Street, but had the effect of pretty much leaving Main Street to fend for itself.

At the end of the day, President Obama deserves much of the blame for trying to negotiate with a political party that told the country at the beginning that 60 vote filibusters would be the norm in the Senate, and then acted in a way that confirmed Rush Limbaugh's wish for him - and, by definition, for the country - to fail (whatever happened to Country First?).

With George W. Bush and his failed policies still a recent memory, this is the only strategy the GOP had. They knew it. People like me knew it. Unfortunately for the country, President Obama is still figuring this out ... and it appears this may cost him big in November.

- Mark

DELINQUENCIES OUTPACE HOME SALES

Another excellent chart from Chicago mortgage broker Michael David White. In a few words, monthly delinquencies on home loans are 16 times larger than average monthly sales.

What this means is that, with 4.63% homes currently in foreclosure, we could see another 5 million homes added to our nation's housing inventories over the next two years. This is especially the case because while housing prices have collapsed homeowner mortgage debt remains relatively the same ...

As the chart shows, while housing values fell from $20 trillion to $13 trillion (34%), total mortgage debt has barely nudged from $11.95 trillion to $11.68 (about 2%). With President Obama's Making Homes Affordable Program in shambles, and with banks foreclosing on homes with positive equity, it's clear that the banks - rather than homeowners - are the only ones benefitting from the banking/mortgage market crisis and the subsequent bailout.

No wonder the market conspiracies are starting to pop up again. Because Wall Street and the banks didn't have to take a hit from the market collapse, it's easy for some to believe the kooks and tin foil hat crowd who think some evil Dr. Doom is behind all of this. In fact, it's tied to political and regulatory capture in Washington, and a lack of political will. President Obama needs to find his FDR moment ...

- Mark

WHY WE NEED HOME LOAN MODIFICATIONS (for everyone) ...

OK, we know that between 14 to 25 million homes are under water. This helps to explain why approximately 7 million Americans are behind on their mortgage payments.

Many Americans would prefer to walk away than be stuck in a home that's not worth what they owe on it. This is what we call strategic default.

For my part I can't fault anyone for walking away in an environment where banks get bailed out for their market stupidity, and then have the added luxury of using unicorn math to make it appear that their "legacy" assets are worth more than they are (to learn more about revaluing "legacy assets" and other market garbage read this and this).

Rather than doing something that would bring a little justice to our economic mess - like allowing bankruptcy judges to modify home mortgage terms, eliminating all interest on home loans, or working to blow up the fake debts accumulated during the bubble days - financially stressed homeowners are stuck with regular threats of foreclosures (especially on houses with equity) and President Obama's other gift to the banking industry, the Home Affordable Modification Program (HAMP).

While congress continues to have hearings on HAMP's progress, the real problem is that deck is stacked against America's middle-class. Seriously, why is it that banks can say their assets are worth more than they are, and get almost 0% loans from the government, but then America's middle class have few options beyond accepting foreclosure, making regular payments on homes that are underwater, and operating under financial conditions that are the functional equivalent of entering a debtor's prison?

These considerations are what makes this post on strategic defaults from nakedcapitalism.com so interesting.

In a few words the article makes it clear that we need legislation that allows bankruptcy judges to modify mortgage amount during a bankruptcy proceeding (instead of simply forcing a foreclosure). Apart from the fact that home ownership lies at the heart of the American Dream, among the practical market reasons for allowing bankruptcy judges to rewrite mortgages include how loan modifications can ...

1. Offer immediate relief to qualified homeowners.
2. Solve the market problems created by subsidized securitization (it tells the securitizers "Get over it, you have to pay for your stupidity too").
3. Address both problems of payment-reset "shock" and negative equity.
4. Screen out speculators (vulture capitalism is not what Adam Smith had in mind).
5. Spread the burden between borrowers and lenders.
6. Avoid the costs of another government bailout (another one's coming the way we're going).

Perhaps the best reason for allowing home loan modifications - which the financial sector derisively likes to call "cramdowns" - is that allowing banks to book property that is underwater at full value, while telling the homeowner they have no real options, essentially gives Wall Street the green light to maintain it's on-going Alice in Wonderland approach to debt and finance.

Seriously, allowing Wall Street and other market players to pretend that what they have on their books is worth what it used to be before the market collapsed is akin to saying that there's no difference between these stars before and after they "aged".

In the real world evolving market realities are supposed to help redefine market environments, for everyone. This isn't happening because of favorable legislation for America's biggest financial institutions. If Wall Street wants the privilege of revaluing assets under stressed economic conditions then homeowners should also have access to loan modifications when they're going through bankruptcy.

Think about it. Once homes are revalued by bankruptcy judges the banksters won't have to revalue so many of their CDO and other toxic assets because they'll reach a new, but more real, market price (like our home values have).

I know, I know ... What about the inviolability of a contract? This kind of thinking is based on a flawed understanding of how the real world operates. Consider the following ...

1. Union contracts get busted up or renegotiated on a regular basis.
2. Companies regularly play "fine print" games with their contracts - especially the credit card industry - and jack up rates for no other reason than they can.
3. Bankruptcy judges write down mortgages for commercial property and other secured loans (like luxury boats) on a regular basis.
4. Many states backed out of contracturally agreed to raises, and docked state employees 10% of their pay after the 2008 market collapse.
5. Subsidiaries can close up shop and leave customers hanging on to worthless contracts, while the corporation at the top of the legal food chain keeps your money (I know about this first hand).

And the list goes on ...

What I'm saying here is that contracts and promises get broken all the time. Allowing bankruptcy judges to rewrite mortgage loans would send a much needed message to America's pampered and incompetent financial institutions. Once market players realize it's going to be a two way street they'll start making better loans, and will be more careful when they decide to "securitize" a loan.

There's more to the story, so read the post, and the discussion that follows. It's pretty good.

- Mark

THE BANKSTERS ... MAKING WILLIE SUTTON PROUD

"Because that's where the money is."

- Famed Bank Robber, Willie Sutton,

responding to a reporter who asked him why he robbed banks.

 

 
Nakedcapitalism's Yves Smith muses about an interesting post from Housingwire.com on foreclosures. It turns out that of all of the housing foreclosures followed by RealtyTrac (one of the 'go to' sources on these things), over 50% of foreclosed homes actually have positive equity. That's right, banks are foreclosing on homes that can be resold at a profit at a higher rate than they're foreclosing on homes that are underwater.

Like famed bank robber Willie Sutton, the banksters are going after homes with equity because "that's where the money is." There's two possible reasons for this.

First, as I've been writing about for a while, it makes no sense for the banks to concentrate on foreclosing on negative equity mortgages because then they have to write-down the value of their assets and their managed portfolios. It especially makes no sense when you consider the banksters understand ...

* You can't claim bonuses, demand higher wages, charge hefty management fees, and then make billion dollar bets if your asset base is declining. Foreclosing only on homes that are underwater damages the asset base.

* New rules allow the banks to use Unicorn math to "reprice" their toxic assets, which artificially inflates the value of their asset base and portfolios (while regulating the market price out of the market). If you don't foreclose on toxic mortgages you can reprice the toxic instrument they are affiliated with.

Second, it's much easier to go after delinquent homeowners with positive equity, where court backlogs aren't so deep, and the outcome is more profitable. As Yves Smith suggests, with foreclosure rates rising in previously "safe" areas like Provo, Utah and Portland, Oregon, the banks seem to be going after the easy money. Because California, Arizona, and Florida have been the hardest hit states there's now a backlog of foreclosure cases there. This means more time in court, for longer periods, in these regions. Foreclosing on homeowners with equity in places like Utah is the industry's low hanging fruit.

And best of all, for the banksters, it's legal.

If you believe in reincarnation, I'm pretty sure where you can find Willie Sutton. He's on Wall Street.

- Mark

THINKING OUTSIDE THE BOX?

Mortgage broker Michael David White has updated several of his many useful charts. The one on negative home equity (i.e. you owe more than the home is worth) stands out. As you can see from the chart below, the number of people who can make money by walking away from their homes runs into the millions ... regardless which bank numbers you want to use.

White has a few suggestions for getting out of the current real estate mess. Fortunately it doesn't involve any of the stupidity or wishful thinking proposed through President Obama's Making Home Affordable Programs (and their equally worthless spin-off and/or affiliates). Seriously, President Obama's housing programs hould be renamed Making Banks Look Solvent, or Pissing Off the American Mortgage Holder, because of how they string homeowners along and keep homes (and CDO-like securities) from being marked down on the books.

Among the ideas from White that I like include "blowing up" the fake debts accumulated during the bubble days so that we can realistically match the price of housing to income. More specifically, this means we need to "massacre mortgage debt." One of his regular readers pitches in with this suggestion: Eliminate all interest on home loans.

Eliminating interest on home mortgages would go a long way in saving taxpayers from having to subsidize homeownership (through interest rate write-offs), while depriving the "Too Big To Care" banks of the money they clearly don't deserve. Sure it might lead to several big bank collapses. But they're not doing anything to help as it is, while their survival is pretty much tied to Fed guarantees and favorable legislation. In a real market environment, the services they provide will be picked up by smaller, more efficient banks, who would also know how to use Uncle Sam's bailout cash. 

- Mark

AGAIN, WE'RE STILL IN TROUBLE ...

If you want to know what's happening on the national real estate market scene check out these 10 charts from Michael David White. For my money, the key charts are the national debts that need to be cleared out (Chart #5), the Housing Market Overhang (Chart #7), and the Mortgage Performance/Negative Equity (Chart #8) that continues to bog down our markets.

I've discussed these issues on air and on this blog before. Still, it's nice to see them bunched together in a market that many people think is recovering. In a few words, we're still in trouble. As I've written, much of the positive news we've seen vis-a-vis the banks is smoke & mirrors. As well, President Obama's Making Home Affordable plan has become a disaster, especially since the banks don't have to negotiate in good faith (having the Treasury Department and the Federal Reserve backstop your toxic bets, and other derivative products with trillions of dollars in guarantees encourages banks to drag their feet).

In all cases, Michael David White makes it clear that we've got more big hurdles to clear. Why the MSM continues to interview the same tired cheerleader/analysts - i.e. the same people who didn't see our 2008 train wreck coming - instead of interviewing people like Michael David White is a mystery to me.

- Mark

EXPLAINING OBAMA'S PLAN

If you’re wondering why President Obama has had to introduce a $75 billion plan to encourage loan holders to renegotiate with distressed homeowners here’s a primer.

We know that financial institutions got themselves into trouble by making incredibly stupid loans. If you had a pulse and could fog a mirror you got a home loan. Financial institutions have suddenly got religion, and are now reluctant to make new loans and are opposed to readjusting existing home loans. They contend that they don’t have any money. What they don’t have is a moral compass, or a collective conscience. The reality is financial institutions aren’t renegotiating home loans because it’s not in their financial interest to do so. Here’s why.

• Home loans were bundled together and sold to financial institutions.

• Bundled loans sold as a package – with a total value of, say, $100 million – created new income streams (from the loan payments you and I make).

• Financial insitutions know that if they renegotiate loans the value of each group of bundled loans could drop between 20-40% (or more).

• Financial institutions would rather keep a set of loans valued at $100 million rather than $60-80 million – even if it means burning down the house.

So, this is what we have ...

Financial institutions, who currently have their hand out, and are living off of the American taxpayer, don’t want the value of their bundled loan packages to go down. They want their $100 million, as it were. They are betting that homeowners and other debtors will be held to their contracts and/or that the American taxpayer will end up making up the difference through a bailout program (made possible by Section 132 of TARP).

Unless we nationalize financial institutions and force renegotiations, or offer incentives through legislation, they will not renegotiate with homeowners who are distressed.

This explains why President Obama has had to introduce a new program to induce financial institutions to renegotiate with home owners who are underwater, or have seen their income situation deteriorate. Unless they are nationalized, forced by legislation, or induced with financial incentives the financial institutions will not renegotiate (as FDIC chair, Sheila Bair, found out). If this situation continues we will move from a situation where 10 million homes are underwater today to having more than 15 million underwater within one year. People will continue to walk away from homes, and housing prices will collapse even further. It’s that simple.

This is really the first step of a broader program that is needed. Some may call it incrementalism. I call it a step forward – as long as President Obama does something about reducing expectations on the bundled loan payouts (called Collateralized Debt Obligations).

If President Obama’s program doesn’t do the trick, I say we nationalize the failed institutions and force home loan settlements. The financial industry is derisively calling this option a "cramdown." I like it already.

- Mark