http://henryckliu.com/page173.html

“Through mortgage-backed securitization, banks now are mere loan intermediaries that assume no long-term risk on the risky loans they make, which are sold as securitized debt of unbundled levels of risk to institutional investors with varying risk appetite commensurate with their varying need for higher returns. But who are institutional investors? They are mostly pension funds that manage the money the US working public depends on for retirement. In other words, the aggregate retirement assets of the working public are exposed to the risk of the same working public defaulting on their house mortgages. When a homeowner loses his or her home through default of its mortgage, the homeowner will also lose his or her retirement nest egg invested in the securitized mortgage pool, while the banks stay technically solvent. That is the hidden network of linked financial landmines in a housing bubble financed by mortgage-backed securitization to which no one is paying attention. The bursting of the housing bubble will act as a detonator for a massive pension crisis.”

(from back in 2005!)

When the drug users (America) runs out of credit cash, the drug sellers (the world) does too.

Good jobs with big pay propelled Ford’s sales in the early 20s; but paying $12.37 2008 Toyota City temporary worker pay means even a bicycle is out of reach [especially for 40% of Toyota's workforce in much higher cost Japan]. And if you don’t think Toyota won’t cut non-union American worker pay to $10/hr too when/if the Big Three unions/companies collapse; you live in a different world than I do.

Soon you will come to realize that the rest of the world is screwed worse than the U.S., and the ECB will eventually be forced to cut to zero as well.

What do you think will happen to the dollar then? Can you say moonshot?

Lenders are still talking like they are in the driver’s seat.

Actually, I think that many lenders have their hands tied. If a given lender is already skating on thin ice financially, having to recognize losses by writing down mortgage principals on masses of loans might well driven them to insolvency. If the choice is between going insolvent tomorrow (after recognizing the losses on mortgages for delinquent borrowers) or delaying the end a little longer by using short-term re-payment touch-ups, the answer is clear,

This is just like the Japanese banks during the 1990s, when they had masses of non-performing loans, but didn’t actually foreclose.

Participation is voluntary: Lenders aren’t all that willing to take a principal balance haircut. Loans held in a pool of RMBS are even less willing to write down the principal balance.

If there’s a second mortgage, it must be completely extinguished. More voluntary write downs.

Third problem: Homeowners have to actively seek and find a lender in their city willing to originate a H4H loan. This is not being offered through mortgage brokers. Lenders only.

I had a guy from Detroit call me this past weekend looking for advice on a Detroit lender to go for for a H4H loan. That’s insane. Why couldn’t he have found it easily on his own?

Remember, all bail-out and stimulus efforts are initiated by, run by, and benefit…..
bankers! Not homeowners, not consumers, just bankers. The job of politicians is to implement the banker’s plans while making it look like everything is being done for the benefit of Main street, not Wall street. Understanding this
will help keep future developments in perspective.

Lenders are still talking like they are in the driver’s seat. In a way they are; people continue to pay debt. Renters continue to pay rent, and home owners are making mortgage payments.

So when you look at loan modifications lenders are asking for the full return.

OK, let’s go to that place that no one talks about.

These lenders have gotten off point by generating paper profit built on other paper profits. For decades globalization has promoted the creation of wealth by extending credit. Visa, in ten short years, is everywhere you want to be. You can go there by using your Visa card. It’s quick, simple, and easy, but now you have to pay the money back.

In my opinion it’s the end of the road. We borrowed, we bought, we refinanced, and now the lender wants the money they gave us as a gift. The problem is collecting. Here in the United States we may just pay, you never know, we just may pay it off, it’s only money, and we have plenty.

In other parts of the world however lending is frowned on. Some place in the Bible it says neither a borrower or lender be.

Just as an example, I work in the Hispanic community a lot and see many a bad deal made to people who really didn’t understand. I mean really, it looked good on paper, but it now looks like preditory lending.

Lenders gave credit cards to every one. CitiGroup was one of the largest consumer credit generators and one of the first to start defaulting.

Here in the United States where lenders pay politicians to make legislation to protect them things may work out. Elsewhere, where politics can be swayed by revolt, or gun play, lending may have problems with that collection process.

I think the curtain has been pulled back and people may demand more tangible goods for the money they give to corporations. In time governments or even politicians may, just maybe, ask for a positive impact for all those profits corporations make each quarter.

As a stock holder we may want to see what good our investments are doing other than paying a dividend to us so we can retire. You see how well that went without over sight, or regulation.

Wonderfully said.

From time to time, including on this blog, people will chastise me for saying that those with real wealth pay with cash, or at least large downpayments, for their homes. Incurring debt, especially by way of an over-sized mortgage is an effective way to prevent oneself from accumulating wealth in the first place. The appearance of having money and the fact of having it are two different things entirely. Government programs that encourage people to appear wealthy by taking on debt are not helping to create wealthier citizens; they do the opposite by enslaving people to greater debt. The real beneficiaries are the banks who collect the interest.

As to why the banks are failing, well, that is another post. The gist of it would be that trading of mortgage instruments is just a legal version of the Ponzi scheme that Madoff was running.

with the upcoming devaluation of the dollar, what are the macro-economic ramifications?

I, for one, don’t buy into the theory that the dollar will be “devalued”, or lose value against most foreign currencies in the near future. The dollar has actually been on an amazing bull tear over the last 3 months. We are likely going to see a brief correction (lasting 2 or 3 months), but I strongly suspect the dollar will wind up appreciating even MORE against most foreign currencies by the end of 2009 (maybe not against the Yen, but pretty much everything else).

The need to pay down debt is going to continue driving MASSIVE demand for dollars. Remember that most of the world’s debt is denominated in dollars…

The people who have been betting big against the dollar have taken it on the chin this year, and I think they will be filleted in 2009. In fact, the overwhelmingly bearish sentiment on tthe dollar is a contrarian indicator. People betting against the dollar should be VERY worried that there is (almost) no one taking the long side these days.

I have an article explaining the case for deflation on my blog at http://www.surkan.com.

A little excerpt from today’s Bloomberg:

“The dollar has been under heavy downward pressure,” said Robert Minikin, a senior currency strategist in London at Standard Chartered Bank Plc. “This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.

Read more

I have no doubt that RE prices will continue to slide, due to consumer sentiment and the lack of a secondary market for RMBS. Is the gvmnt’s plan to inflate the dollar faster than the deflation of the RE assets? Anyone else care to chime in? (I know.. I need to go back to my macro econ txt books…)

Heck, even if a lender was actually willing to reduce the payments to some ridiculously low negative-amortization amount (i.e. where the payments don’t actually pay down any mortgage principal), many home-owners will decide to walk-away anyway if their domicile is deeply under water.

As unemployment grows, matters will only get worse. There is absolutely NOTHING anyone can do to help an unemployed person stay in their home.

When the federal government economic witch doctors suggested giving 4.5% interest to “some” of us, even the media was alarmed….”where’s my refinance bailout too, they screamed?”

That’s why anything to do with bailing out some of the foreclosures gets stonewalled. The majority aren’t cowering in fear and rightfully so.