When commenting last week on the latest troubling trends in Canada’s housing market, we predicted that unlike a previous forecast by Deutsche Bank’s Torsten Slok from early 2015, who at the time said that “Canada is in serious trouble”, this time the moment of truth for Canada’s all important housing market was indeed at hand.
Earlier today, the leader of the Jabhat al-Nusra front, Abu Mohamed al-Golani confirmed that his group has formally split from al-Qaeda and has renamed itself Jabhat Fath al-Sham or the Levantine Conquest Front. “The creation of this new front aims to close the gap between the jihadi factions in the Levant,” Golani said in his first televised appearance. “We thank the leaders of al-Qaeda for understanding the need to break links.“
“Looking at the destruction Morgan Stanley wrought on the mortgage market, and the crooked judges are looking for a “settlement” early next year. No word about the millions who suffered as a result of their policies, not just those who bought the homes, but all of us who suffered from radical drop in property values as a result of mass foreclosures around us.”
Since the financial crisis, Wall Street firms have argued that they were victims, just like everybody else, of the bad mortgages that were churned out by subprime lenders like Countrywide and New Century.
Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to which one of Wall Street’s leading banks, Morgan Stanley, actively influenced New Century’s push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments.
America’s second largest lender has reached a $17 billion settlement with US federal authorities over selling bad mortgages, according to sources close to the negotiations.
The bank will pay out $10 billion in cash and $7 billion for consumer relief – such as modified home loans and refinanced mortgages, AP reports, citing officials close to the negotiations. The final verdict is due on Thursday.
The fine will be the largest single compensation settlement, beating out JPMorgan Chase & Co’s $13 billion penalty paid in November 2013. Citigroup, another major US bank, had to pay $7 billion in July.
In February, I highlighted the fact that subprime loans were about to make a return in my piece: Subprime Mortgages are Back…This Time Marketed as “Second Chance Purchase Programs.”In that article, I posited that with the “all cash” private equity shops and hedge funds no longer able to make good returns through buying new homes to rent, these investors would need some sucker to sell to in order to realize a return (Blackstone’s purchases have plunged 70% recently). That sucker, as always, will be the retail muppets, and those muppets will be lured in through subprime. This is now starting to happen in earnest.
The following article from the Wall Street Journal is both depressing and disturbing. Rather than allowing home prices to reset at a lower level after the 2008 crash where to normal buyers could afford a sane 20% mortgage, our central planners decided to do “whatever it takes” to re-inflate the housing bubble. This was achieved through wealthy investment pools buying properties for all cash. The trouble is, with home prices now inflated by these financial buyers and no real increase in wages, homes are simply unaffordable. So what do you do? You bring back subprime and get the peasants long real estate with essentially zero money down all over again. Truly remarkable.
If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: “The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn’t intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea.”Priceless.
Federal Reserve Chairman Ben Bernanke is determined to push mortgage rates to record low levels and he is encouraging the banks that the Fed regulates to make home loans more freely. Wait a second – isn’t that exactly what caused the last housing bubble?
After 9/11, the Federal Reserve slashed interest rates and this caused mortgage rates to steadily fall. Financial institutions were urged to help “expand home ownership” in America, and many of them started making home loans to people who never, ever should have gotten home loans. When mortgage rates started to go back up, millions of families with adjustable rate mortgages discovered that they could not make their monthly payments. Mortgage delinquencies absolutely soared and large numbers of mortgage-backed securities suddenly turned into garbage.
When observing the trends in the housing market, one has two choices: i) listen to the bulls who keep repeating that “housing has bottomed”, a false mantra which has been repeated every single year for the past four, or ii) look at the facts. We touched briefly on the facts earlier today when we presented the latest housing starts data:construction of single family residences remains 46 percent below the long-term trend; the more volatile multifamily houses is 15 percent below trend and demand for new homes 47 percent below. This is indicative of reluctance by households to make long-term investments due to fear of another downturn in housing prices. Bloomberg summarizes this succinctly: “This historically weak demand for new homes is inhibiting the recovery of demand for construction workers as well, about 2.3 million of whom remain without work.” But the best visual representation of the housing “non-bottom” comes courtesy of the following chart of homes in negative or near-negative equity, which via Bloomberg Brief, is soared in Q4, and is now back to Q1 2010 level at over 13.5 million. What this means is that the foreclosure backlog and the shadow inventory of houses on the market could be as large as 13.5 million in the future, which translates into one simple word: supply.
Here is Bloomberg’s Joseph Brusuelas on this topic:
Approximately 13.5 million households hold negative or near-negative equity positions on their mortgages. Many of them will likely lose those homes to foreclosures, which are again on the rise. At best, an increase in foreclosures will constrain a recovery in prices; at worst, a flood of inventory to market will put further downward pressure on prices.
In other words it is Bloomberg, not us, coming up with the perfectly logical idea that a number as large as the total number of underwater mortgages may and will end up on the market as foreclosures, which in turn will clog up the market clearance piping for years, if not decades to come.
In this episode, Max Keiser and Stacy Herbert discuss the virtual virtual economy getting hit by a dustbowl and there are no gully washers or toad stranglers on the horizon to bring reliefe; meanwhile out in the virtual real economy it’s all the bath-salts and beer you can drink and scalps for sale in California as eminent domain falls into the hands of private bankers. In the second half, Max interviews Teri Buhl about the possibility of San Bernardino county using eminent domain to seize mortgages from one set of rich private investors to give them to another set of rich private investors.
All Americans should be very, very alarmed. Today’s Wall Street Journal ran a front page story on a proposal put forth by Mortgage Resolution Partners LLC as a ‘solution’ to the problem of underwater mortgages. When you read their PowerPoint presentation for comprehension it is clearly threatening to all commonly perceived rights of private property and free will.
Here is their summary slide describing the program…
While virtually everyone has opined on the topic of the massive fiscal “cliff” set to take place on January 1, 2013, which could crush US GDP unless American politicians manage to find a way to end their acrimonious ways, most forget that a far more tangible cliff is set to take place much sooner, specifically over the next several months, as those currently collecting handouts from the government in the form of extended unemployment benefits (i.e., those who have been out of a job for a year) are about to get as angry as Germants pre-funding TARGET3, once the free money stops. Goldman explains why: “First, more than 150,000 workers per month exhaust their allowed benefits. Second, recently legislated thresholds will reduce benefit eligibility in many states with below-average unemployment rates beginning in June. Third, apart from legislative changes, labor market improvement in some states has taken the state-level unemployment rate below eligibility thresholds, with many states looking at likely expiration of one or more tiers of benefits around mid-year.” In other words, unlike the bulk of other transfer payment programs (read government subsides) which could be extended with the flick of a switch at the end of the year following the now traditional 1+ month congressional theatrical impasse, extended claims can not. The net result: by June some 700,000 people who are currently collecting benefits will lose everything. It seems that the old faithful EBT card is about to be denied- and while one can assume that extended benefits are not a core source of marginal aspirational product (read AAPL) sales, we all know the truth. Is the time finally coming to short the one company that is and has always been the primary beneficiary of government transfer payment largesse? Because if AAPL’s recent shakiness has been, by some, attributed to the expiration of EBTs, what will happen when Americans are again forced to pay their mortgages?
“A government big enough to give you everything you want, is strong enough to take everything you have” – Thomas Jefferson
Something odd and not quite as planned happened as America grew from its “City on a Hill” origins, on its way to becoming the world’s superpower: government grew. A lot. In fact, the government, which by definition does not create any wealth but merely reallocates it based on the whims of a select few, has transformed from a virtually invisible bystander in the economy, to the largest single employer, and a spending behemoth whose annual cash needs alone are nearly $4 trillion a year, and where tax revenues no longer cover even half the outflows. One can debate why this happened until one is blue in the face: the allures of encroaching central planning, the law of large numbers, and the corollary of corruption, inefficiency and greed, cheap credit, the transition to a welfare nanny state as America’s population grew older, sicker and lazier, you name it. The reality is that the reasons for government’s growth do not matter as much as realizing where we are, and deciding what has to be done: will America’s central planners be afforded ever more power to decide the fates of not only America’s population, but that of the world, or will the people reclaim the ideals that the founders of this once great country had when they set off on an experiment, which is now failing with every passing year?
As the following video created by New America Now, using content by Brandon Smith whose work has been featured extensively on the pages of Zero Hedge, notes, “we tend to view government as an inevitability of life, but the fact is government is not a force of nature. It is an imperfect creation of man and it can be dismantled by man just as easily as it can be established.” Unfortunately, the realization that absolute power corrupts absolutely, and absolute central planning leads to epic catastrophes without fail, seems a long way away: most seem content with their lot in life, with lies that their welfare money is safe, even as the future is plundered with greater fury and aggression every passing year, until one day the ability to transfer wealth (benefiting primarily the uber rich, to the detriment of the middle class which is pillaged on an hourly basis), from the future to the present is gone, manifesting in either a failed bond auction or hyperinflation. The timing or shape of the transition itself is irrelevant, what is certain is that America is now on collision course with certain collapse unless something changes. And one of the things that has to change for hope in the great American dream to be restored, is the role, composition and motivations of government, all of which have mutated to far beyond what anyone envisioned back in 1776. Because America is now saddled with a Government Out Of Control.
Watch the two clips below to understand just how and why we have gotten to where we are. Also watch it to, as rhetorically asked by the narrator, prompt us to question whether the government we now have is still useful to us and what kind of powers it should be allowed to wield.
Wonder how Americans can afford to buy millions of iGadgets, a second LCD TV for the shoe closet, and eat at restaurants more than almost any time in the past despite sliding personal income? Simple – increasingly fewer pay the biggest staple bill in a US household: their mortgage. The following story of Keith And Janet Ritter, who have lived in their Fort Washington, MD $1.29MM, 4,900 square foot McMansion for 5 years (which they purchase with no money down) without ever making a single mortgage payment, and who are not even close to being evicted, may explain much about the way US society currently operates, and why other perfectly responsible and hard-working taxpayers (who do have to pay for their mortgage) continue to fund tens of billions in Fannie and Freddie losses who are first on the hook to absorb the implicit losses by allowing families such as the Ritters to live in perpetuity without paying, and the banks to keep said mortgage on the books at par without any impairments.
The eviction from their million-dollar home could come at any moment. Keith and Janet Ritter have been bracing for it — and battling against it — almost from the moment they moved into the five-bedroom, 4,900-square-foot manse along the Potomac River in Fort Washington.
In five years, they have never made a mortgage payment, a fact that amazes even the most seasoned veterans of the foreclosure crisis.
‘Inside Job’ provides a comprehensive analysis of the global financial crisis of 2008, which at a cost over $20 trillion, caused millions of people to lose their jobs and homes in the worst recession since the Great Depression, and nearly resulted in a global financial collapse. Through exhaustive research and extensive interviews with key financial insiders, politicians, journalists, and academics, the film traces the rise of a rogue industry which has corrupted politics, regulation, and academia. It was made on location in the United States, Iceland, England, France, Singapore, and China.