EDITOR’S COMMENT: Let’s assume that the banks are right, that the foreclosures are all legal, and that any errors are legally and properly correctable. And, for the sake of argument, let’s also assume that the homeowners are to blame for the financial crisis — that a viral fad spread throughout the country and the world wherein the borrower in 60 million transactions lied and deceived the lenders who were caught blindsided by the acts of greedy wannabe’s who were trying to make a fast buck by flipping homes and are now trying to wriggle out of their predicament with a fancy dance of legal technicalities. And let’s further assume that all the homeowner defenses proposed here and else where lack any merit whatsoever.

We are left with 2 glasses of water sitting on opposite ends of a board. One glass is filled to the top and spilling over with excess and the other is nearly drained with nothing left. The board is sitting at the edge of a cliff and the full glass is on the end of the board just barely protruding from the edge of the cliff. The empty glass is sitting all the way at the other end moving slowly toward the full glass because the board is starting to tip toward the chasm beyond the cliff from the sheer difference in weight of the glasses. The outcome is obvious. Both glasses and the board are going to fall into the abyss shattering the glasses, dispersing the water, and splintering the board into thousands of pieces. What if we wanted to stop the glasses and the board from falling? What would you do?

The full glass is the financial sector that is brimming with money that was once in the hands of government, taxpayers and homeowners. It’s full both because we are assuming that they played the game fairly and won, but also because they made some bad bets and the government decided they were too big to fail. Thus the decision was made that regardless of blame, the biggest risk takers who claimed the biggest losses were given money under the theory that it would save the economy from collapse and save our nation’s standing in the world. Let’s further assume that the decision to give the banks the money they claimed they lost was the right one and that the reasoning was right — that it stopped the imminent collapse of the nation’s economy and preserved our standing in the world.In other words the receiving banks were in fact too big to fail and the bailout was the only way to save the situation regardless of ideology, philosophy or theory.

We are still left with the two glasses perched at the edge of the cliff moving inevitably and inexorably toward the fall into the abyss. Without adding weight to the other glass and moving it back toward the other end of the board to gain more leverage, the weight of the full glass will cause the board to tip over the cliff. The board, if you haven’t guessed, is our system of government, our society and our economy.

If the only answer to stopping the board from tipping was to put some of the water from the full glass and some of the spill off from the excess water from the spill off back in the empty glass where it came from, under what theory of government would we not do that? What is good for the goose is good for the gander. Giving every benefit of every doubt to the banks we bailed them out simply because the of the practical reality that they were too big to fail, even though we were made as hell at them over what they had done. We knew they were wrong but we helped them anyway because it was the only practical thing to do.

I put forward the following proposition: that the homeowners, local and state government and the federal governments are too big to fail. Our economy has always been driven by consumer spending and now consumers have negative net worth, no credit, no savings, and not enough income to survive without 2 or more jobs in each household. As it stands, regardless of the reason, consumer spending in this country is not going to recover measurably without a change in their ability to spend. We are about out of paper and ink to print more money to give it to them so there must be some other way. It turns out there is another way.

By shifting the losses back to the financial sector from which they came, the government can shift the balance of wealth, spending and and consumer spending, without spending one dime. Adjusting the correcting the mortgage terms on 60 million transactions to reflect the current reality of the fair market values of homes and the awkward loan to value ratios, homeowners can be returned to some measure of equity or at least hope of equity, both of which are lacking under current circumstances. This is going to happen whether it is done purposely or not. The board will not tip. The glasses will not fall — because either the branches of government are going to come to grips with reality and govern and guide the shift of wealth or it is going to happen chaotically as more and more people simply stop paying their mortgage.

The homeowners are too big to fail — having a claim to more than $13 trillion in wealth (nearly the entire GDP of this country as it is currently measured). They are far bigger than the banks although not bigger than the shadow banking system we allowed the banks to create. In real money (not nominal value of derivative “currency”) the homeowners are bigger than anyone. So if you want the board to stop tipping toward disaster, and save BOTH the full glass and the empty glass, we need to recognize that the property is not worth and will never be worth the obligation claimed to be owed on it. “Do the right thing” is not just a philosophical idea. It is a practical solution to a practical problem. One way or the other, most homeowners are going to either get the modifications they seek or they will walk away from the homes. The process can be orderly or it can be chaotic but it cannot be stopped. If it were stopped, both glasses, all the water, and the board itself would be gone forever.

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

November 19, 2010

Hiding From Reality

By BOB HERBERT

However you want to define the American dream, there is not much of it that’s left anymore.

Wherever you choose to look — at the economy and jobs, the public schools, the budget deficits, the nonstop warfare overseas — you’ll see a country in sad shape. Standards of living are declining, and American parents increasingly believe that their children will inherit a very bad deal.

We’re in denial about the extent of the rot in the system, and the effort that would be required to turn things around. It will likely take many years, perhaps a decade or more, to get employment back to a level at which one could fairly say the economy is thriving.

Consider this startling information from the Pew Hispanic Center: in the year following the official end of the Great Recession in June 2009, foreign-born workers in the U.S. gained 656,000 jobs while native-born workers lost 1.2 million. But even as the hiring of immigrants picked up during that period, those same workers “experienced a sharp decline in earnings.”

What this shows is not that we should discriminate against foreign-born workers, but that the U.S. needs to develop a full-employment economy that provides jobs for all who want to work at pay that enables the workers and their families to enjoy a decent standard of living. In other words, a resurrection of the American dream.

Right now, nothing close to that is happening.

The human suffering in the years required to recover from the recession will continue to be immense. And that suffering will only be made worse if the nation embarks on a misguided crash program of deficit reduction that in the short term will undermine any recovery, and in the long term will make true deficit reduction that much harder to achieve.

The wreckage from the recession and the nation’s mindlessly destructive policies in the years leading up to the recession is all around us. We still don’t have the money to pay for the wars that we insist on fighting year after year. We have neither the will nor the common sense to either raise taxes to pay for the wars, or stop fighting them.

State and local governments, faced with fiscal nightmares, are reducing services, cutting their work forces, hacking away at health and pension benefits, and raising taxes and fees. So far it hasn’t been enough, so there is more carnage to come. In many cases, the austerity measures are punishing some of the most vulnerable people, including children, the sick and the disabled.

For all the talk about the need to improve the public schools and get rid of incompetent teachers, school systems around the country are being hammered with dreadful cutbacks and teachers are being let go in droves, not because they are incompetent, but strictly for budget reasons. There was a time when the United States understood the importance of educating its young people and led the way in compulsory public schooling. It also built the finest higher education system in the world. Now, although no one will admit it publicly, we’ve decided to go in another direction.

In New York City, for example, Mayor Michael Bloomberg’s choice to run the public school system is Cathleen Black, a wealthy corporate executive with no background in education whose children attended expensive private schools. Mr. Bloomberg has asserted that Ms. Black’s management expertise will be a boon to the city’s public school children. But the truth is that Ms. Black, if she gets a necessary waiver for her new job, will be presiding over budget cuts that can only hurt the schools. As part of a proposed austerity budget, the mayor is planning to eliminate the jobs of thousands of public school teachers over the next two years. Take that, kids.

We’ve become a hapless, can’t-do society, and it’s, frankly, embarrassing. Public figures talk endlessly about “transformative changes” in public education, but the years go by and we see no such thing. Politicians across the spectrum insist that they are all about job creation while the employment situation in the real world remains beyond pathetic.

All we are good at is bulldozing money to the very wealthy. No wonder the country is in such a deep slide.

We don’t even seem to realize how deep a hole we’re in. If student test scores jumped a couple of points or the jobless rate fell by a point and half, the politicians and the news media would crow as if something great had been achieved. That’s how people behave when they’re in denial.

America will never get its act together until we recognize how much trouble we’re really in, and how much effort and shared sacrifice is needed to stop the decline. Only then will we be able to begin resuscitating the dream.

 

Posted in bubble, Corruption, Eviction, securities fraud |