They Aren’t Really This Stupid, Are They?

Market Ticker – Karl Denninger
View original article
November 28, 2009

I’ve been slack-jawed a couple of times during this debacle of an economic mess, but this has to take the cake: (<– I highly recommend reading this link in its entirety including the comments.)

Here is the real stunner. A senior person at Treasury said to a small group of us that it is now official Treasury policy to extend and pretend on real estate loans. In other words, the policy statement from last week says, if you can make an analysis that says even if the current value is less than the loan, if you can do a spreadsheet that shows if you extend for 3-5 years, and if the economy gets better, and if the loan can be amortized down to where the loan is no longer more than the value, then the lender does not have to take an impairment -write down. Loans are to be modified by rate reductions, deferral of reserves, deferral of amortization or what ever.

Did ‘ya read all those “ifs” in there?  What if one of the “ifs” doesn’t?

It gets better:

Giant make believe. The free market seeking an equilibrium price is no longer economic policy. In short, the working of the free market is suspended. She went on to say it was administration policy that they will create new employment and by doing so they will boost the economy, and so then real estate values will return to old levels. There were 50 of the most senior and smartest real estate people in the room. They ripped her to pieces. It looked like one of the town hall meetings of August, except everyone there was a very senior, polished professional. At one point everyone was calling out or moaning at her. It was clear to all she had been given a few talking points and she was told to stick to them no matter how foolish she looked. The group told her in no uncertain terms this is terrible public policy. They said for jobs to be created you need to lower rents so the cost of occupancy was at a level to encourage more hiring. If the loan is kept at old levels and building values not reduced, then landlords can’t reduce rents to where they need to be to make taking space by tenants economically viable. Retailers costs remain higher than they should be making it harder to lower prices to induce sales. So there is a massive make believe going on.

The pros get it (as have I and a few others.)  What’s more they communicated it.

When I pressed the issue of political interference she said – what do you want us to do, bankrupt all the banks.

That is the choice.

What does this tell you?

A. The problem is going to take much longer to solve than it should,

B. The banks are still very weak, so lending will not return anytime soon,

C. A massive refi problem is getting deferred to 2013-2015.

D. The administration is playing politics with the economy to a degree that is dangerous. There has to be a massive value reset for real estate. We are deferring the inevitable.

Actually, it tells me something else.

What are the odds that all those “ifs” pan out?



What happens when they don’t?

The banks all go bankrupt anyway, and the economy has been further trashed by the destruction leveled on employment as a consequence of this policy.

What’s even worse is that this jackass of Treasury Representative, assuming the conversation reported really happened, told a bunch of professionals that if all of those “ifs” don’t pan out the banks are all going to blow up.

What do you think those professionals will be doing when, not if, it becomes apparent that they’re right – that the economy is not recovering at a reasonable pace and that the “extend and pretend” game is not only not working but is inhibiting recovery?

And by the way, I’m curious how you all think this is going to work out, given this little ditty (find the source here)…..

These pros are going to short the ever-loving hell out of anything that has a ticker symbol as soon as the turn-down is evident!

There is only thing worse than being stupid – it is admitting that you’re stupid by putting a bankrupt and unworkable “policy” in front of a bunch of professionals who have the acumen to analyze what you’re up to, tell you that you’re nuts, and then act on it to profit while grinding the banks and indeed all of America into dust – but you stick to it as “policy”, even though those who are smarter than you are have told you point-blank that it won’t and in fact can’t work.

Thank you Barack and Turbo Timmy – you own it, this is your policy, this is your legacy…….

……and this will be your political obituary.


3 Responses to “They Aren’t Really This Stupid, Are They?”
  1. Virginia @ Ferrer says:


    “The construction industry plays a powerful role in sustaining economic growth, in addition to producing structures that add to our productivity and quality of life.” If this segment of the population isn’t moving well – it will obviously affect the rest of the community. Whose fault is it that they are unemployed? Whose fault is it that they can’t meet their mortgage payments? Who actually injured them? Reckless, careless disregard, negligence… the time has come for a moratorium on foreclosures and state and/or federally imposed restructure of home loans. Additionally, Congress needs to immediately appoint a Receivership on MERS and MERScorp.

    What I gleaned from NORTHEASTERN UNIVERSITY LAW JOURNAL Vol. 2, No. 1
    Regaining the Wonderful Life of Homeownership Post-Foreclosure
    an academic paper on the subject of foreclosures and MERS, was the important point that Courts will likely allow foreclosures to proceed due to non-payment unless:

    “the borrower may be able to show that the proper mortgagee would not have foreclosed and, thus, the foreclosure was an injury”

    The injury began with the inflation caused by the “bubble” in the mortgage lending market stemming back to the late 1990s that created a false economy. At the roots of the worst recession since the Great Depression were unaffordable home mortgages packaged into securities, sold to investors, and used as capital assets by financial institutions. The process of securitization, as well as financial institution over-leveraging associated with it, has been well documented and explored. However, there is one company that was a party to more questionable loans and foreclosures than any other – Mortgage Electronic Registration Service (MERS), whose culpability in fostering the mortgage foreclosure crisis and the long term effects of the fraud and kayos within the mortgage banking industry, that created, embraced and profited by, through and from MERS, has subverted the individual rights and liberties of hundreds of thousands American homeowners.

    Due to the massive foreclosures, glut on the market of empty homes and inflated values used to re-purchase the REO (bank owned real estate), the economy cannot rebound. Homeowners remain unemployed. Construction, the housing market, as well as other viable industries are at a standstill because the questionable legal and public policy foundations of this odd, but extremely powerful, company are so interwoven and attached to America’s financial destiny.

    With the growth of the mortgage industry during the turn of the century came a rise in profits for associated industries and vast employment opportunities. Construction, a trillion+ dollar industry, was in full force until 2007. It plays a vital part in the economic wheels that drive our economy. The damage to this key industry has far reaching implications caused directly by the corporate greed, lack of sense of consequence, consideration and compassion of the financial institutions along with their investment firms’ and insurance companies’ partners who formed Mortgage Electronic Registration Service with an intent to defraud.

    Historically, residential investment has also recovered before the overall economy, leading the way out of recession. The role of residential investment as an engine of recovery has been missing in this instance. Since reaching a peak in the spring of 2006, payroll employment in residential construction has declined from 3.45 million (seasonally adjusted) to 2.15 million, or nearly 38% (nearly the same rate on the average as the home loan inflation).

    Overall employment did not reach a peak until December 2007, and has declined by 6% (from 138 million to 129.5 million). The over-leveraging and fraudulent mortgage market is totally to blame on this closely related industry’s injury, failure and continued decline.

    Sectors related to residential investment have fallen even more, with declines of 29.8% in wood products, 21.9% in nonmetallic minerals (including window glass, gypsum products and fiberglass insulation), 18.7% in fabricated metals (ductwork, metal windows and doors) and 19.3% in HVAC equipment.

    Although housing starts have stabilized in recent months, at the lowest rate of production since World War II, employment in residential construction and related industries has continued to decline, due to the lag between housing starts and completions. Moreover, growing weakness in nonresidential building construction will produce further declines in employment.

    The declines in residential and nonresidential construction activity have created large reservoirs of unused capacity in labor markets and production facilities. The unemployment rate for experienced workers in construction was 24.7% in January 2010. Although that figure partly reflected seasonal factors, the average for 2009 was 19.1% – representing 1.77 million workers – and the latest unemployment rate value was 6.5 percentage points higher than in January 2009. The overall capacity utilization rate in manufacturing was only 68.9% in December, but it was even lower for wood products (51.5%), nonmetallic mineral products (54.0%) and fabricated metal products (63.9%). The monthly data on capacity utilization from the Federal Reserve do not provide more detailed industry categories, but housing-related manufacturing is undoubtedly operating at even lower levels of capacity utilization. Quarterly data, with more detail, from the Census Bureau, show capacity utilization for paint, coatings and adhesives at 56.7% in the third quarter of 2009, even though overall capacity utilization for the chemical industry group was around 72%.*

    When this sector of the economy is injured it has a domino effect on the rest of the markets. And in Hawaii, construction, along with tourism are the primary income tickets to a healthy economy. Their decline and loss are a direct result of the financial crisis stemming from the over-leverage fraud and collusion caused by a “merger” of banks, investment firms and insurance companies that have impacted and injured homeowners and their ability to maintain their mortgages.

    This specific financial crisis is attributed to and stems directly from the financial industry’s (banks, investment firms, insurance) creating a monopoly designed purposely to over-leverage and foreclose; which knocked out the housing and construction industries, creating injury to homeowners due to unemployment, downturn in the economy and other related issues.

    “The construction industry plays a powerful role in sustaining economic growth, in addition to producing structures that add to our productivity and quality of life.” If this segment of the population isn’t moving well – it will obviously affect the rest of the community. Whose fault is it that they are unemployed? Whose fault is it that they can’t meet their mortgage payments? Who actually injured them? Reckless, careless disregard, negligence…

    The American population was injured in the purposely over-leveraged banking crash. The injury was a direct result caused by corporate greed, manipulation and the creation of MERS. Had there been no securitized mortgage trading, there would have been less chance for fraud, likely no recession, the payments would have been made and the proper mortgagee would not need to foreclose.

    * Statistics quoted from:
    The Home Performance Resource Center is a national 501(c)(3) nonprofit organization formed to conduct public policy and market research in support of the Home Performance industry.

Check out what others are saying...

Leave a Reply