Eminent Domain is Still on the Table: Banks Outraged!

Editor’s Comment: The more people look at it, eminent domain looks like a good option that is fair and reasonable and smokes out the REAL creditor. Thus the Banks are up in arms about it and using every bit of lobbying and political muscle to stop it. But the practicalities of eminent domain might trump even the weight of the Banks. Curing the mortgage crisis will result in lifting the weight off of the budget of local government, limiting the burden on homeowners, and starting a robust, honest, transparent market in the secondary market where loans are traded and sold.

The way it works is simple. The local government seizes the mortgage, and pays the “owner” the fair  market value of the value of the mortgage. The amount is much higher than the amount they would receive in foreclosure so the banks would be stuck arguing for less money than they would ordinarily get. AND the actual party with a loan receivable would need to prove up the receivable, with all proper credits and debits — meaning that a final determination on the allocation of insurance, credit default swaps and Federal bailouts would need to be made.

This would expose the players in the securitization chain to civil and tax liability that they have not reported to the investors nor to the borrower. The actual amount left on the debt might lower than the fair market value of the property — but creditors are only allowed to get paid once for each debt, not multiple times the way they did in the securitization scam.

Each local economy would get a shot in the arm that would end or limit the fiscal and budgetary crisis, with homeowners given breathing room to develop equity and not feeling crushed under the weight of debt that can never be repaid anyway. This will increase spending, having an enormous effect on the local economy and a fairly substantial effect on GDP as the benefits trickle up to the top, where taxation of the players is already under scrutiny.

The problems for the banks is that they have two basic choices — give the money to the investors, making them whole or give back the money to the insurers, CDS counterparties and Federal agencies. They would have no claim on the seizure because by definition they are claiming that the REMIC pools own the debts.

This in turn will reveal the fact that the assets on the books of the balance sheets of the mega banks are largely fictitious and that huge liabilities have been left “off-balance sheet”. The insolvency of the megabanks would come front and center to the attention of everyone and then the Dodd-Frank bill and FDIC rules would work to “resolve” the insolvent banks by selling off pieces to those banks (out of more than 7,000 possibilities in this country alone) who are healthy and can absorb the pieces.

Whether it is eminent domain or anything else, this is the final result as I see it. We can only pretend so long before the sham economy becomes recognized and a real economy replaces the sham economy.

It simply is not possible for financial services to grow from 16% of GDP to 48% of GDP when the economy and every household was going further and further into debt. They were counting paper that was worthless in GDP when they should have been building things providing real services etc. The object became the illusion of making money rather than the reality of actually doing anything to earn it.

When financial services falls below 20% of GDP it will be at least one signal that our economy is back to basics. Eminent domain is one good way of forcing the issue. Everyone will be better for it and frankly the bankers who committed all these acts will be millionaires and billionaires regardless of what happens to their banks.

Tags: eminent domain, fair market value, fiscal crisis, local government' budget, real creditor
Posted in bubble, Corruption, Eviction, securities fraud |