January 30, 2008
Elaine Meinel Supkis
Everything can be turned into assets and all things including gold can suddenly turn into debits. I see a need to explain this since people imagine there is some rock-solid form of asset that always gains in value no matter what and can be used as 'money' at all times. Nothing is that easy or we would all be trillionaires. Recently, there has been a madcap belief in using our houses as assets rather than necessary evils that drain our incomes. The crash of the housing asset bubble has returned housing to its traditional role as a necessary overhead COST rather than as a positive money flow. Time to talk about 'jingle mail' where people are not honoring their promises and are walking away from foolish 'investments'. This has a high social and economic cost we will all be forced to pay.
If banks can make "business decisions" to ignore risks, to lend money with no down payment, and fire people at at the first sign of trouble without any remorse, why shouldn't consumers be able to do the same?
Will Deutsche Bank and the other 20 lenders attempt to walk away from this mess as a business decision? You bet. The business of walking away is going to be booming for a long time to come. This is yet another reason why Things That "Can't" Happen are about to.
This isn't 'walk away'---this is SKIPPING OUT OF TOWN. I hate this sort of thing. I had a rich neighbor who used his mansion and other properties in this area to gamble in the Dot Com markets. He played derivative games and when that crashed in the scandals we saw back then, he lost everything he bet. Since he did this by signing promises with banks that he would pay back and he used the value of his properties to do this, when the crash happened, he went belly up. He dealt with this by skipping town. After vandalizing his mansion.
Now I live next door. About a quarter mile away. We both share this part of our small mountain outcropping. When he did this act, he lowered the value of my own house. Not to mention, I was now worried about his mansion burning down due to the teenagers in the village below us. Recently, the poet, Frost, had his museum farm house totally vandalized by drunk teens. So it is a constant worry. as it was, another family below the mansion also abandoned ship and teens raided the garage for drunk parties.
So the irresponsible gambling of my rich neighbor turned into a crime when he vandalized his house significantly. Then this leads to the temptation to commit arson, etc. A cascade of criminal actions ends up destroying the community. This is why 'skipping out' is frowned upon.
I am a traditionalist. I happen to believe that old ways of doing things is often the best. Actually, most 'get rich quick' schemes are not new at all but often were figured out hundreds if not thousands of years ago. These thing flourish in 'boom' or 'bubble' times which always are times when there is 'easy money' being lent. Many bubble schemes are launched by governments seeking money for wars but reluctant to tax the populace. Traditionalists want harmony, peace and simple pleasures. We plan for the future, we look forward to a ripe old age where we can be surrounded by loving children and grandchildren. I suspect much of the fear we see these days is due to people ceasing to have children and so they rightfully fear being able to afford to be old. More about that thought, later.
The most precious investment is the family. This has been breaking down for the last 40 years as we sank into collective debt. There is no mystery that the destruction of the family has run right alongside the increase in debts. Both national as well as individual. The prime economic powers on earth are all seeing a collapse of the family. In Japan, the family has ceased to grow to an astonishing degree with the children never leaving home and the marriage/child bearing rate continues to fall. In some minority communities in America, 80% of the children are born out of wedlock and don't ever know their fathers. This is due to the collapse of working wages and increasing debts of society.
Are you stressed out about your mortgage payments?
Do you have little or no equity in your home?
Have you had trouble trying to sell your house?
Is your home sinking under the waves of the real estate crash?
What if you could live payment free for up to 8 months or more and walk away without owing a penny?
Unshackle yourself today from a losing investment and use our proven method to Walk Away.
Your lender WILL NOT be able to call you in attempt to collect!
Your lender WILL NOT be able to collect any deficiency or loss they may receive by you walking away!
You WILL be able to stay in your home for up to 8 months or more without having to pay anything to your lender!
You CAN have the foreclosure REMOVED from your credit!
It's important to act now before it's too late!
Wow. Live for FREE by stiffing the banks! Live for FREE if you don't honor your word! Hey, the people at the very top do this all the time! And they do.
Let's review why our banking system, our governments and our families are collapsing: it's OK to lie, cheat and steal. And to be dishonorable. And to play risky games like having sex outside of marriage or children out of wedlock. I did this in my wayward past. But then, men were not interested in marriage. I discovered that when I got property and built up capital, men wanted to marry me. When I was in college and got pregnant, no one wanted me. When I was an old hag at 40 years of age and had property, I had guys down to the age of 25 banging on my door with the parson in tow.
I had girlfriends of 90 years old who, when a husband died, had marriage offers. But at the other end of the scale, people are struggling. Children are expensive to raise, I have done this more than once. They can be viewed as generational investments. If raised properly. It is the obligation of the elders to help them get into property. I started off with rental/owner properties when I was my kid's age. Now they are doing it, too, with the family nest egg invested in their home/rental combos. These are held until the kids can live with a token mortgage for tax deduction purposes. Then they can buy a house for themselves only.
The entire clan looks after each other's properties to insure all are run properly. I know many tight immigrant families who do this. They end up jointly owning a dozen properties, half of which are rent generating properties, often in poor neighborhoods where the rents are higher than the cost of the buildings. One has to be tough to be a landlord in these places, of course. I filed my fangs being a landlord of a good property which was well run but in a slum. I would sweep the sidewalk of the entire block, hassle tenants of other landlords for 'airmailing' their garbage and I ran a street patrol that grew increasingly powerful and successful as we improved the crime stats. Today, that neighborhood is called 'Park Slope' and is very wealthy.
But most of the house buyers in this last bubble were irresponsible and foolish and note this web site urging 'walking away' after living for free for almost a year: they show pictures of smiling, happy, intact families. I assure everyone reading me, the families playing this game of cheating banks, cheating the neighbors and living like deadbeats will lead to DESTRUCTION. They teach their children bad morals and will cheat each other. I have seen this all my life. When the lights went out in NYC in the middle of our city's bankruptcy in the 1970's, many of my neighbors thought this was a grand opportunity to loot. They burned down the neighborhood and I moved out. It remained a horrible shell of empty, crime-filled ruins for 30 years. Before this looting, it was poor but intact and vibrant! All the stupid things they looted didn't improve their lives. They lost everything to gangs and drug dealers who moved into the ruins. They lost everything.
Morals matter. The attitude, 'I'm skipping out on America/devil take the hindmost' is dangerous. Thinking, 'all the rich steal, I will steal' leads to anarchy.
A message to other ruling elites: YOU BASTARDS. LOOK AT WHAT YOU ARE DOING, YOU ARE DIGGING YOUR OWN DAMN GRAVES! My family has a long institutional memory. We know that if we screw up, the price will be paid by our heads in revolutions, riots, wars and insurrections. Heads can roll. The need for the rulers to set a good example is life and death. When they fail, all fails and this is highly explosive. Treating the working class well is primary. Indeed, it should be of highest concern, not lowest regard. Yet we are in a culture where people with lots of money and power are setting a very bad example to everyone else. The Moral Majority has become the Amoral Walk Away Majority.
When the honest, good people of the land ape their 'betters' when these betters are the worst, we get social chaos and a collapse of the government as well as the economic life. Roman orgies, anyone?
This chart is from the Walk Away web site. Note how bankruptcies are relentlessly climbing. More liquidity can fix this only if housing rises in value. And it can't rise if incomes are being eaten alive by inflation and the collapse of rewards to the working classes who moved into the middle class for the first time right after WWII.
The party is over once the ability and willingness of banks to lend, or ability and willingness of consumers and businesses to borrow is exhausted. Those signs in place today for all but ostriches.
One thing I want to be clear on is that I am not calling for another "great depression". We could have one, but I am inclined (at least right now) to doubt it. Japan went through 18 years of deflation and the world did not end. The US will survive deflation as well.
However, we are likely to see something the US has not seen since the great depression: a falling standard of living and a declining middle class. Many things will be A Matter Of Choice but no one alive knows exactly what choices government will make.
Comparing Japan's fake depression to our looming real one is a mistake many economists make. Japan never had a true depression! This is not when prices fall. It is when INTERNATIONAL TRADE COLLAPSES. Far from it, Japan's trade has shot upwards like a rocket, an unprecedented 6 years of huge increases every year! They are #1 in trade profits! They are #2 in trade surplus. Far from a depression, this is a roaring economy. One proviso: it is based on keeping prices in Japan low as possible so they have depressed wages and this has caused the collapse of working class families. Japanese families were famous for loving children and being very strong with no divorces. Well, divorces are on the rise but what is more telling is, NON-MARRIAGE is rising much faster! There is no marriage in the first place, anymore.
Japan's elites are marrying. And they can afford children. But the workers are not able to buy much of anything including the ability to have children.
Some men cannot afford the costs of owning a car, while others simply have no interest, raising concerns among auto industry officials in the nearly saturated domestic market.
"I usually ride a bicycle to go out shopping, and there's my parents' car at home, so I don't have any particular interest in having my own car," said a 22-year-old man in Nagoya who has a driver's license.
The man, who quit a full-time job late last year, says few of his friends have their own vehicles.
Full time jobs are hard to find if a man is young in Japan. They are living at home. The Japanese call men like these, 'NEETs'. They play video games online and work only in the most desultory fashion if at all. Auto sales in Japan are now lower than in 1983 and dropping. The depressed workers are giving up even on the dream of owning a car. The rest of the world can't sell Japanese imported cars if the entire market is collapsing there. But Toyota doesn't give a hoot. They are selling like crazy and making increasing profits overseas and this depends on a weak yen and the only way to get that is to depress wages at home which kills the home markets but makes powerful sales abroad.
A fatal choice, I would say, in the long run just as the US turning our culture into a pro-deadbeat culture is fatal to us.
A survey by the Japan Automobile Manufacturers Association (JAMA) also found that the ratio of those who do not own a car jumped from 21.3 percent in 2001 to 32.1 percent in 2005 among men in the first half of their 20s.
The percentages for those in their 30s and older showed little changes during the same period.
JAMA officials attribute the decrease in ownership among young men to the widening income gap.
We are copying Japan! Depressing worker's wages. Killing the ability to have families. Degrading everyone into deadbeats. Rich deadbeats are protected in various ways by their fellow elites. Working class deadbeats die. Often, in prison. Rich people like Donald Trump can lose everything and then get it all back really fast, making deals. Workers who hit rock bottom seldom rise and their children pay a very heavy price. If American males follow the path of the Japanese males, we will see a contraction worse than the 1930s. Back then, there was a desire to own a car, to build a family despite the depression, there was this hope.
This time around, has that died? Will young men dream of marriage, family and love? Or even fast cars? Or will they lose all their dreams? Anyone who can tap into this future potential is very dangerous. We can see tiny bits of this with the Ron Paul energy that is now rapidly fading due to the ruling elites removing him from view and letting us know he won't be allowed to even address these issues. One funny thing here: Guilliani, when he quit last night, admitted that Ron Paul was the only good person in the debates and was right! I grind my teeth, hearing this sort of thing.
Concerns are fueled by a combination of events that affect millions of households. Traditional pensions that paid a set amount for life are being phased out in many workplaces. The 401(k) savings plans that have replaced them do not assure enough to retire on, except for those who have saved carefully for many years. They are also vulnerable to the kind of sharp market downturns that rattled Wall Street last week.
Almost 1 in 2 workers -- 48% -- has less than $25,000 in savings, and 71% have less than $100,000, according to a 2007 survey by the Employee Benefit Research Institute.
On top of that, more than 75 million Americans, or about half the workforce, have no opportunity to participate in a retirement plan. Experts say many of them are headed for a bleak future.
Too many people were thinking their houses which are money machines---which they are NOT unless they include a rental, they are money sinks, not profits unless one manages to pay off all debts. All housing has a big overhead in the form of repairs to mechanicals and structures, yard work, etc. Ever call in an electrician or plumber? Replace roof shingles? We are talking many thousands of dollars here. Out of pocket.
Holding gold is the same. You have to protect it and care for it which is why it ends up in vaults in caves.
The withdrawal of pensions from workers has been insidious and long run. Many can't afford to put money in 401k programs due to inflation and others who do can end up being burned by dishonest dead beats who infest the investment arms of the banking system. An army of Evil Kerviels screwing up everything. People will walk away from houses they bought last year but walking away from a lifetime home is hard and the downside will show up over time as rootlessness and despondency builds up. The fall from grace will be hard and last years. The loss of flower patches or front porches where one hung out with friends will torment the night hours. Moving to some faceless town in another community will not heal these social wounds.
In Arizona, I used to watch this at work. People would give up on real communities in Detroit, say, and move to Tucson. At first, they imagine they are in paradise. But they fall apart because there is no community unless they join the university community or the military community. Building a new life is not as easy as people imagine. This is why families matter. You build them and they can expand near and far and still be a community. This is why immigrants are stronger than people atomized by economics. They tend to cling to one neighborhood. Bit by bit, they buy up neighboring houses and commune together. When I was Mrs. Levy in NYC, my husband's family lived all around us, aunts, uncles, cousins, grandparents. All within walking distance.
Here in upstate NY, we forged another family which includes the Levy family and some of them moved up here so we are together in a community up here and this is how it works. But you need family connections. The people 'walking away' from new-bought homes too expensive to hold were atomized by moving into houses they couldn't buy, often far from work and friends. And now they will be rootless as well as far from home.
Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA, even though New York state insurance regulars would like to get a postponement until the state can develop a bailout package, CNBC has learned.
Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.
Barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday.
And why are they going bankrupt? They insured loans to people who couldn't possibly pay any ARM, etc, loans. The spread of deadbeat destruction is moving outwards, sucking in all systems. We are in a debt crisis that was started by both easy money loans and 100% financing. Over the centuries, bankers figured out that if a home buyer doesn't plonk down at least 20% of the value of the house, the temptation to 'walk away' is irresistible. And they don't resist it.
Indeed, the temptation of businesses, investors and homebuyers to 'walk' grows as the insurance covers ever-closer to 100%. Here is some thoughts from an email sent by a reader who wishes to remain anonymous:
OK, let’s expose this magic money and prove the Emperor has no clothes. A simple example will show how this works. Let’s take 26 people and call them Mr. A, Mr. B, Mr. C, etc. Each of the 26 are identified by the letters of the alphabet.
Mr. A writes on a piece of paper, "I.O.U. one million dollars" and signs his name. Everyone else writes out an identical note. Mr A. then hands his I.O.U. to Mr. B. Mr. B hands his signed note to Mr. C., and everyone else hands his piece of paper to the person on his right.
What we have just created are 26 instant millionaires. Each person is the recipient of a million dollar asset–a note promising to pay him a million dollars. The fact that he does not tell anyone that he also has given his promise to pay someone else a like amount is not revealed. It is called on "off balance sheet" liability. He knows he owes it, but he does not fess up to it. From a realistic standpoint, nothing has changed. Every person is the same off as before he became an instant millionaire. In fact, he could take the note to a bank and have it discounted and added to his checking account. Now the bank has the basis to make 10 million dollars worth of loans to other customers. There is nothing backing up the I.O.U. each person gave to his neighbor. Neither is there anything backing up the cash that Mr. A received when he gave the note to his bank in exchange for cash. The pieces of cash in various denominations have nothing backing them up except that they can be redeemed for other pieces of paper that are backed up by the promise to be redeemed by other pieces of worthless paper.
As we can see so far, nothing of value has changed hands. There are trillions and trillions of pieces of paper mixed in with I.O.U.s from people all over the globe. If someone said to the 26 people in our original example, "on the count of three, everyone destroy your neighbor’s I.O.U. that he gave you," in reality nothing would change. No one would suffer any negative consequence. They all might feel a little poorer, but it was all "paper profit" just like when a stock goes up and then falls back to the price one paid for it. It’s all fantasy.
The bank, on the other hand, gave out pieces of paper called cash to Mr. A for the I.O.U. he claimed as an asset. But it was worthless. The bank can seize the balance of the funds in Mr. A’s checking account and request that he pay the difference. If Mr A already spent most of that money, the bank is out of luck and has to write it off, and that will reduce the profit it makes from collecting interest on the money it gives out to other people bringing in phony I.O.U.s. Since the bank collects interest on phantom I.O.U.s, it doesn’t hurt it when it has to give some of that up. The banking system has no skin in the game, so they should not complain when they don’t collect as much ill gotten gain.
The moral of the story is that the whole money, currency, securities, CDO, SIV, etc., system is based on nothing. So when some of this nothing disappears, there is no real loss either–only a psychological loss as in the case when Mr. A. had to destroy the I.O.U. his neighbor gave him. But he also gained in the sense that his I.O.U. to Mr. B became worthless also. It all balances out in the end.
The cascade of problems caused by the loss of profits is considerable. I keep pointing out that FLOW matters when we talk about either trade or finances. When the EXPECTATION of future profits dies, many other things attached to the possibility of future prospects also die and we get a negative flow. This cascades out of control if too many people destroy too many expectations of future earnings too fast.
UBS AG, Europe's largest bank by assets, had a record loss after raising fourth-quarter writedowns on assets infected by U.S. subprime mortgages to $14 billion.
The Zurich-based bank announced today a net loss of 12.5 billion Swiss francs ($11.4 billion) for the fourth quarter, almost double the median estimate of analysts surveyed by Bloomberg. The annual shortfall was about 4.4 billion francs, the first since UBS was created through a merger a decade ago.
UBS fell as much as 4.1 percent in Swiss trading as its loss exceeded those reported earlier this month by Citigroup Inc. and Merrill Lynch & Co. The collapse of the U.S. subprime mortgage market has led to more than $130 billion of losses and markdowns at securities firms and banks since June.
The banking crisis continues. The US is floundering and the rise in 'walk aways' is dangerous if the walkers are part of the world's #1 economy which happens to also be the #1 destination of world trade. The flow of trade will shift and change but we will pay a price. We can look to Japan to see what that means. It means the end of the 'American Dream.' And the beginning of the 'American Nightmare.'