Thursday, July 15, 2010

The $20 Trillion Dollar Showdown

Not that I am surprised:

"July 15 (New York Times) -- Goldman Sachs has agreed to pay
$550 million to the Securities and Exchange Commission to settle
charges of securities fraud linked to mortgage investments sold
to investors, a person briefed on the matter told The New York
Times's Edward Wyatt."

Quick Take:

This ruling is just further confirmation that the elite of this nation control this country.  According to the settlement:  Goldman also doesn't have to admit guilt which will protect them from being sued.

Needless to say I am extremely disappointed in this result.  When is this country going to stand up and do the right thing?  This firm was selling CDO's at the same time they were shorting the same paper with the firms own money.   This is blatant fraud and all Goldman gets from the SEC is a slap on the wrist.

Why isn't anyone going to prison for this.  The housing bubble was the largest fraud in the history of this country. 

America was scammed to the tune of $7 trillion dollars:

Why are the banks allowed to get away with this?   Look at the chart folks.  If you bought a house within the past 5 years you were sold a bill of goods.  The suckers that were sucked into this Ponzi scheme have now taken a $7 trillion dollar loss on their $20 trillion dollar housing investment.

And prices are still dropping!

Buying a house during this period was similar to buying a car: Both purchases lost 30-40% of their value as soon as the ink dried on the loan papers.

The American dream of owning a home has quickly turned into the American nightmare! 

There will be no strong recovery in this country for a generation because the banks have turned every Mcmansion homeowner with a mortgage into 30 year debt slaves.

Everyone is nor running away from housing in droves now that everyone realizes they were scammed.

Sales have now fallen off a cliff:

What a disaster this whole thing is.

How does the SEC give Wall St a free pass after sucking every last nickel out of America between home loans and credit cards?

More importantly, how do we even begin to recover from such massive losses that need to be taken on these Ponzi investements?

The reality here is most of the people that bought these homes cannot afford them and are now defaulting or deciding to "walk away".  Foreclosures continue to soar and god only knows how much shadow inventory the banks are sitting on. 

Even the rich who can afford them are deciding to walk:

"LOS ALTOS, Calif. — The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars is seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.
“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist."

Continued Take:

This is what happens to Ponzi bubbles once they start deflating.  When the game is over everyone heads for the exits.  The problem we have here is there is $20 trillion dollars in mortgage debt that hangs in the balance as people start running away.

This is all well and good up until now because the homeowners were allowed to walk away because the banks were allowed to hide their losses on their balance sheets.

The problem is this model is not sustainable because the losses must be taken at some point.

As expected, Fannie and Freddie are rapidly waking up and realizing that this "walking away" thing is rapidly turning into a potential financial catastrophe:

"NEW YORK (AP) -- Government-sponsored mortgage purchaser Fannie Mae is trying to encourage distressed homeowners to find alternatives to foreclosure by banning those who walk away from getting new loans for seven years.
Troubled borrowers who do not try in good faith to work out a deal, but have the capacity to pay, are targeted by the policy announced Wednesday.
"Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," said Terence Edwards, executive vice president for credit portfolio management.

A strategic default occurs when a homeowner stops making payments on a mortgage despite being able to do so. It has become increasingly common in communities where housing values fell sharply and homeowners are "underwater," or owe more than their houses are worth.
Fannie Mae said that in locations where the law allows, it also plans to take legal action to recoup outstanding mortgage debt from borrowers who strategically default. The company plans to instruct its servicers to monitor delinquent loans facing foreclosure and recommend cases to pursue for such judgments."

The Bottom Line

Things are about to get really dicey folks.  The smart ones that walked away were the ones who made this move early.

From here on out you can expect the banks and the government(who back the paper) to start going after all assets in order to get their money back.

If you don't have the assets then they are going to go after your paycheck.

So we now have this "lovely" situation where houses continue to drop in price which forces more people to run for the exits which now is going to force the banks to take the borrowers to court in an attempt to get their money back.

There is  no other option because they can't afford to take the losses on the $20 trillion dollar housing Ponzi scheme.

This process is going to take decades to be worked out of the system.  The consumer is going to fall off a cliff once they realize they must continue to pay on their "loser" investment. 

The days of "squatting" and  "walking away" are now history folks!

The government and the banks can no longer afford to turn a blind eye to the housing mess.  This "realization" is happening at the same time the sheeple are realizing they were scammed for $7 trillion by the banking/housing industry. 

Now they want out and they are in the process of being told that they can't.

With $20 trillion on the line the banks and the government have no other choice but to force you to pay for that American Dream.

How anyone can be bullish long term on the economy once the consumer realizes the party is over in housing.

I can't wait to see how unemployed Americans react to actually being forced to make good on a bad investment that was based on a fraudulent Ponzi scheme. 

The fact that Goldman was able to walk away today without being forced to be held accountable tells you all that you need to know when it comes to who actually is going to end up paying for this $20 trillion Ponzi scheme.

Forcing $20 trillion down the throats of the US taxpayer is going to be interesting to watch. 

I wonder how many bankers will be hanging from lamp posts after millions of broke borrowers are told in court that their wages are going to be garnished for the next 30 years after being fraudulently being suckered into overpaying for a house?

To be fair there is a lot of blame to go around here.  The realtors,  buyers, appraisers, and the banks are all responsible.  The problem is the music has stopped and the banks are being allowed to walk.

This means YOU are on the hook for the $7 trillion in losses. 

Meanwhile, as of today, the bankers have been told they get a free pass.  What makes this even more disgusting is the fact that they get to keep the billions that they made of this scam.

Anyone starting to get angry yet?  If your not then you should be.

Disclosure:  No new positions taken at the time of publication.


getyourselfconnected said...

My disclosure:
sick to my stomach at this stuff, and sicker still that nobody cares.

You get what you deserve my dad always said.

Great post!

Jeff said...

Thanks get!

I guess you get what you deserve unless you are a banker!

We will begin to see how much people care in November I suppose.

I have a feeling as this housing crisis intensifies that people will start getting very angry and disgusted.

I still don't think most people haven't realized how much they have lost on their homes.

It's gonne be ugly when that "come to Jesus" moment happens.

Jeff said...


Ugly day.

DOW getting punished.

GE earnings were not good.

COnsumer sentiment tanked.

Reality setting in!

Anonymous said...

Jeff, for more than two years you are angry. You won't change a thing. Americans should march to Washington and say: "No, you can't!" But instead they watch American Idol and are happy campers.

My advice: Buy a gun and shoot any asswipe in Washington. You will hit the right guy.

Jeff said...



I am trying to rally the troops.

Nobody is ready to listen for now I suppose although more people are checking this place out in the past few months.

I am starting to get interview offers from a few out of DC which I find interesting.

The people may not be angry yet but I believe the folks in Washington are beginning to squirm a bit.

getyourselfconnected said...

Maybe the reason for the sell off today:

Uh oh, maybe banks hoarding cash because they will have to pay out lawsuits???

Jeff said...


It's only the beginning my friend.

Great catch. I missed that one today.

Me XMan said...

What a fucking mess our gov't got us into with great help from mother fucker bankers. Here I thought I voted for the man will change this country and turns out he's continuing the same shit from the last administration. What a fucking disappointment.