Everybody Knows…

by lizard

There is a quote from zerohedge that popped up on my twitter feed that sums up the Euro-mess quite succinctly:

Everybody knows that everyone in Europe is lying about everything.

To illustrate this point, check out this video of an Irish journalist rendering Klaus, a European Central Banker, speechless:

Back at home, Mike Whitney describes why a strategic backlog of foreclosures is being kept off the market:

The reason that housing prices have dipped only 33.6 percent in the United States instead of 60 percent as they have in Ireland, is because the big banks have been keeping inventory off the market. If the millions of homes–that are presently headed for foreclosure–were suddenly dumped onto the market, prices would plunge and the biggest banks in the country would be declared insolvent. That’s why the banks have slowed the flow of foreclosures. According to Amherst Securities Group’s Laurie Goodman, “….2.8 million borrowers haven’t made a payment in over a year. Add that to the over 450,000 real estate owned (REO) units and you have approximately 3.2 million that are in the shadows. We are liquidating about 90,000 homes a month. That’s about 36 months of overhang; a really shocking number.”

What more to say? How about a song instead.

  1. I think your guy at Counterpunch is a bit jaundiced. There’s a couple of things here that alter the “Big Banks” (or should we say “Hatred for Big Banks” narrative.

    First, most banks don’t hold a significant amount of residential mortgage loans in portfolio. There’s a reason for that. Under regulations banks are limited to the amount of long term loans on their books by the amount of long term deposits (aka “core deposits”.) Remember that the big scandal of 2008 was that banks were bundling mortgages into securities and then making derivative securities out of those bundles? Hence, most REO on the books of banks is there in their role as trusties of the actual bond holders and not very significant.

    But that’s not to say that there’s not an effort to hold back foreclosures. Since, however, nearly 60% of mortgages are held or serviced by Fannie and Freddie it makes more sense to think that it’s our government overlords who are holding back to a much greater degree than are the banks.

    There are a few possibilities for this:

    The government doesn’t want the public to know the extent of this malfeasance – especially in an election year

    The master of finance at the Treasury are trying to manage the price level

    There really is no conspiracy but just a backlog combined with gross institutional incompetence that the market is completely FUBAR.

    There may be others but those are my top three.

    ps – I’d be careful listening too much to ZeroHedge. That Tyler Durden fellow never misses an opportunity to cry wolf.

  2. Max

    What the Irish do not understand, most Americans, and all leftists, is that governments need the banks more than banks need the governments. In simple terms, banks are the retail outlets for money manufactured by governments. Without a smoothly functioning banking system, governments cannot implement fiscal or monetary policies. Think of a carmaker without any dealerships. That is why governments “bailout” banks.

    Furthermore, in a fiat currency system such as ours, it could be argued that out-of-control fiscal and monetary policies are the cause of systemic bank failures. Reckless government polices wreck the banking system by creating asset bubbles that the banks, and everyone else, and drawn into. So it only makes sense that the entity which did the damage should be the one to repair it.

    As for the “shadow” inventory of houses hanging over the real estate market, the problem is not so much liquidating the deadbeats and booting them out into the street, or the mortgage holders taking their lumps, since the average foreclosed house sells for only about a 20-percent discount to the local market, but rather it is the 11 million homeowners who are already “underwater,” i.e., they owe more on their mortgages than their houses are worth. Those people, who are still current on their mortgage payments, will be driven further underwater, and millions more will join them, if prices decline further.

  3. Matthew Koehler

    Great post Lizard. Sure was nice to see the Irish journalist not taking a ‘go-along-to-get-along’ approach to reporting. Asking hard, and sometimes uncomfortable questions, is what’s needed at this point in time.

    I also hope that people let the insights of Mike Whitney regarding banks intentionally keeping foreclosed homes off the market sink in real deep. While that practice may not be common-place in Montana, our state’s lumber and wood products industries are obviously impacted.

    Back in 2009 when Senator Tester unveiled his mandated logging bill (Forest Jobs and Recreation Act) he was asked by a reporter if mandating public lands logging at a time new home construction was down 70% made for good public policy. Senator Tester’s response was simply “The housing market has to come back.”

    Well, no, the housing market doesn’t have to ‘come back,’ Senator Tester, even if that’s what your big banking buddies have been telling you. In fact, it won’t come back and it shouldn’t come back. The housing market of the 1990s until about 2006 was completely unsustainable, eating through resources and land, building bigger and bigger homes while creating a housing bubble so big that it nearly knocked our entire economy to its knees. And as Whitney points out, we’re not out of the woods yet, and in some respects, the worst might be ahead.

    Combined with Whitney’s insights the folks at the timber industry’s own “Forest to Market Watch” just released their March 2012 Housing Market Report, which provided more details into the troubles the US Housing market is having with both existing homes on the market, as well as the “shadow inventory.”

    Rather than opening up more public national forest lands to mandated logging, these folks instead recommend:

    “Production staying low may be the key. In addition to the homes currently on the market (151,000 new homes + 2,310,000 existing homes = 2,461,000 total), CoreLogic estimates the shadow inventory totaled 1.6 million units at the end of October 2011 (770,000 units that are seriously delinquent, 430,000 in some stage of foreclosure and 370,000 owned by lenders but not on the market). The total inventory, by this calculation, is in excess of 4 million units. If we estimate new household formations conservatively at 1 million per year, a full recovery in the housing market could be as much as 4 years away.” (Source: http://blog.forest2market.com/2012/03/01/mar-2012-housing/)

    Remember, when the full extent of the economic crisis starting becoming clear in 2008 we were told by timber industry and construction industry ‘experts’ (the same ‘experts’ who said nothing about the crisis as it approached) that the housing industry would rebound by 2010. Then it was pushed to 2011. Well, here we are in 2012 and now these experts are saying, maybe by 2016 the housing market will recover…unless all that ‘shadow inventory’ pushes it back even further.

    Allowing politicians to step in and simply start mandating more logging or resource extraction on America’s public lands is not a sane economic or ecological solution to this crisis.

    • Ingemar Johansson

      Sooooooo since the demand for timber is down lets lock up more forest?

      • larry kurtz

        Please don’t make me agree with Swede, Mr. Koehler. Most of the forests of the Rocky Mountains are broken and should be restored before being rewilded.

        • Matthew Koehler

          What are you guys even talking about? Provide some evidence, facts and some context please. Thanks.

          • larry kurtz

            There are 70 million acres of collapsed pine forest in the United States alone.

            Turpentine distilled from the California pines such as Ponderosa Pine (Pinus ponderosa) and Gray Pine (Pinus sabiniana) yield a form of turpentine that is almost pure heptane.

            When producing chemical wood pulp from pines or other coniferous trees with the Kraft process, turpentine is collected as a byproduct. Often it is burned at the mill for energy production. The average yield of crude turpentine is 5–10 kg/t pulp.

            For parts of the West this is as much a reduction in the threat of weaponized wildfire than an economic development opportunity. Harvesting timber is diesel fuel intensive. Just paying for pine removal after the collapse of the housing market has exacerbated the potential for catastrophic conflagrations.

            Strategically-placed improvised fuel air explosives (FAEs) deployed during red-flag conditions have the potential to create a firestorm that would be virtually unstoppable.

            Go over to the Hinkle thread, Mr. Koehler, and connect the dots.

            • Max1

              With all that turpentine lying around, you would think a guy could buy a gallon of decent mineral spirits to clean some paint brushes. But, no. Instead, he ends up with a gallon of “green” mineral spirits that promises to be non-toxic, non-flammable, odorless, and most importantly, “Earth friendly.” Naturally (no pun intended) the product does not work at all. It looks like milk and has about the same cleaning power.

              So the guy throws it away along with his money.

              I wonder if the enviros around here have any idea how much economic damage they are doing to themselves and the nation in pursuit of their insane philosophy.

              — Max Bucks

              PS: Fuel-air bombs went out with World War II. You have been reading too much science fiction.

  4. ladybug

    Max, you said: “Reckless government polices wreck the banking system by creating asset bubbles that the banks, and everyone else, and drawn into. So it only makes sense that the entity which did the damage should be the one to repair it.”

    “…THE ENTITY…!?” What about the mortgage companies, the ratings agencies, the SEC, the Fed’s cheap money, AIG and the insurance wizzards, the crooked realtors, and “sucker (sub-prime, interest only, balloon payment, variable-rate, etc.) loans,” and other “innovative” bank products like the sliced-and-diced bonds and securities sold with tranches of worthless and legitimate mortgage loans mixed together like minestrone soup? What about deregulation? You grossly oversimplify to sing in harmony from the free-market hymnal. It’s way more complicated than you think.

    Please read All the Devils Are Here, by Bethany McLean and Joe Nocera, and get back to us. Budge, you might like this one too.

    • Max

      It is very simple: Money (credit) is the essential commodity in any modern economy. And the entity that controls that commodity controls the economy. That entity is the US Federal Reserve.

      Everything else follows. You can expand your list of responsible parties indefinitely, but in the end, it all comes back to the entity that controls the supply of money.

      –Max Bucks

  5. larry kurtz

    Wolf management is to ranching as tar sands are to habitat.

    • Max1

      Oh, OK. So you were talking about high-tech thermobaric weapons delivered from a C-130 Hercules or may a B-52 Stratofortress at an altitude of what, 10,000 feet? Wow, big dude, very scary stuff!

      I thought you were talking about some dippy Arab with a box of matches, or maybe an Earth First-type trying to graduate from burning down ski lodges.

      Ha ha ha. Good luck with that. And don’t forget to pull the covers up over your head when you go to sleep.

  6. ladybug

    So, do you now claim that “the government” controls the Fed? I thought you just said: “…governments need the banks more than banks need the governments.” The Fed is a (“central”) private bank, right?

    I think I will stick with my list of unaccountable parties, any one of which could have ended it years earlier. And I believe the global economic train wreck was caused by the cumulative effects of all culpable parties.

    • Max1

      Maybe you missed the fact that the US Federal Reserve was created by an act of the United States Congress, or that its governors are nominated by the President of the United States and confirmed by the United States Senate. There is a reason why it is called the United States Federal Reserve System, but maybe you missed the United States part.

      You are entitled to your beliefs about how our financial system works, no matter how ill-informed or immature your beliefs may be. Expand your bogeyman list all you like, but ultimately you will have to learn where money (credit) comes from and what effect it has on an economy when there is too much or too little of it.

      — Max Bucks

  7. ladybug

    Created on December 23, 1913, I got that. And, you are right, I have been missing the United States part, a lot, especially lately. It is hard to ignore, however, that one hand washes the other. I do appreciate the discussion.

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