One of our volunteers wrote an extremely good article “This is what the housing recovery looks like?” that I thought I would share with all of you.Before that a few comments:
So how did we get to this point? Simple — we abandoned the rule of law, removed common sense and ushered in an era of unaccountability. Combine that with several presidential administrations who had no clue about anything happening on Wall Street — and that assured that moral hazard would become moral morass.
So before you read the article below consider this:
- Foreclosures are more successfully hidden from view because the banks have better control over the flow in various parts of the country. This gives the appearance of declining foreclosures — except for the 6 million more homes that are going to be foreclosed. Like the fake documents they are using in court, the banks have turned the whole perception of foreclosure into a game (fun for them) of Wackamo.
- Price earnings ratios are at record highs — taking on average some 27 years to make the cost of the stock in earnings. That is insane. The normal P/E ratio has always been half of that.
- Free money is what floated the market prices up and it is exactly the same thing that will bring it down. Over 50% of all stock owned is with “margin” money which in lay terms is a loan using the stock as collateral. The stock goes down and that causes a “margin call” which means you don’t have enough collateral and the only way you meet the margin call is by selling more stock. See “Housing Market” if this is sounding familiar.
- Policy has been based upon the average working person being inconsequential. So it didn’t bother the multinationals who gave up on the American working class and set their sights on selling to Chinese companies and people. With that philosophy it didn’t matter that American homeowners lost more than $10 trillion in illegal mortgages, illegal foreclosures and outright theft. But genius runs thin at the upper echelons of people in power who are just about as dumb as anyone else. They never thought through the fact that ONLY a thriving middle class in the U.S. would be the safety net for American companies who had given up on anything that was American.To say they were all shortsighted is being too generous.
- So economic activity has already fallen by half — except for false reports from the financial sector that now accounts for 48% of our GDP when 20 years ago it accounted for 16% of GDP. Let me clear the smoke in the room — if actual goods and services are down there is nothing REAL to be traded on Wall Street that would account for its phenomenal growth in importance in our GDP. Eventually the bubbles burst. Careful this one doesn’t catch you flatfooted.
This is what a housing recovery looks like?
Wells Fargo released their Q4 earnings last week. Investors were concerned that oil prices have fallen, while energy investors were concerned about the impact on domestic shale. However, investors should have been concerned when the nation’s largest mortgage lender released their residential mortgage applications data. The chart shows that $64 billion in mortgage applications were submitted in the fourth quarter, not only was this a major drop from Q3, but also the lowest number of applications submitted since the first quarter of 2014.
Is this what a housing recovery looks like? Are consumers too broke to purchase, are home prices too high- or have people finally came to understand the risks of taking out a mortgage from a major lender who will securitize their loan and transfer the servicing rights to a company that, if they should encounter any financial setbacks, is incentivized to take their home?
Furthermore, the US Treasury is cracking down on criminal and money laundering “all cash” buyers. In Miami, anyone paying “cash” for a property over $1 million dollars will be under financial scrutiny to “prove” the cash is from “legitimate” sources. They have also issued the same policy for buyers in New York City that pay cash for homes over $3 million. Eventually this practice will probably become widespread to all major U.S. city. This policy will do nothing but shift investments into other assets or raw land elsewhere (the wealthy have the means to invest off-shore).
Meanwhile, Goldman Sachs has received an insignificant slap on the hand for their role in the 2007 mortgage meltdown by paying a civil settlement of up to $5 billion from federal prosecutors and regulators because of their marketing and selling of known faulty mortgage securities to investors, while KNOWING these securities were worthless. This is a criminal matter with evidence, and yet the regulatory agencies and law enforcement do nothing to stop the fraud, thus perpetuating the corruption.
Goldman Sachs announced:
Under the terms of the agreement in principle, the firm will pay a $2.385 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief. The consumer relief will be in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.
The bankers have received a “get out of jail card” because they are able to blackmail and control the politicians that control the prosecutors and regulators. Is there any other explanation? If you or I steal a candy bar, we are going to jail and getting booked. If we steal a couple billion through securitization schemes we might be deposed and subsequently promoted for protecting the bank. It is no coincidence that Rubin and Paulson who were CEOs at Goldman Sachs were promoted to Secretary of the Treasury after they ran block for their employer. The corrupt racquet known as the “revolving door” ensures that bankers remain above the law.
In the movie the Big Short (I recommend all readers of LivingLies go see this movie), there is a scene where a party girl lounging at a ritzy hotel pool is shown looking for a job with Goldman Sachs despite the fact at the time that she is an SEC regulator. She has no consideration about the conflict of interest, but is more concerned about how to leverage her current position for more pay and prestige- to hell with the law or protecting investors. Another scene depicts how the rating agencies sell their ratings and how their ratings are not based on any type of logical algorithm! In any other industry these practices would be considered racketeering, bribery, and FRAUD. The bankers, regulators and politicians have no fear that there will be consequences for their behavior. Why should they? Not one banker involved in mortgage security fraud has been charged with a crime. In fact a fine of $5 billion dollars while they made billions and billions in profit is nothing but a “cost of doing business” fee! Unfortunately, as long as the elite can profit off the backs of the consumer and investors with no real oversight- every borrower and investor is vulnerable to market and housing losses.
The take away message is that the law now protects those who generate wealth for their wealthy friends in high places. The other 99.9% of us are on our own. The wolf is circling the hen house, while the border collie takes bribes from the wolf. There is little protection from government agencies, politicians or the judiciary when they are all benefiting from the same system for personal enrichment. Where is law enforcement when all of this is going down? They are receiving “cool toys” or decommissioned military equipment from the feds, promises of a safe pension from the state, all while getting to play cowboy while the average American’s quality of life plummets. As for the housing market? Enter at your own risk.
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