brni (brni) wrote,

now they're planning the crime of the century

Roll Call:

Bear Stearns - failed - bailed out - $30B
Countrywide Financial - sold to Bank of America
IndyMac Bank - bankrupt
FannieMae - failed but "TBTF" - US law rewritten to allow for $800B more national debt
FreddieMac - failed but "TBTF" - US law rewritten to allow for $800B more national debt
Lehman Brothers - failed - bankrupt - fire sale to Barclays Plc $1.35B ($1.29B for the real estate)
Merrill Lynch - failed - sold to Bank of America
Bank of America - borrowed the money needed to buy Merrill Lynch
AIG - failed but "TBTF" - Federal Reserve loans $85B
Northern Rock - nationalized by the UK
HBOS (Bank of Scotland) - to be taken over by Lloyds TSB

but wait, there's more.

Metropolitan Savings
Miami Valley Bank
Douglass National Bank
Hume Bank
ANB Financial
First Integrity Bank
First National Bank
First Heritage Bank
First Priority Bank
The Columbian Bank and Trust Company
Integrity Bank
Silver State Bank
ACC Capital Holdings
Washington Mutual
BNP Paribas
Terra Securities
Sentinel Management Group
American Home Mortgage
American Freedom Mortgage
New Century Financial Corporation

Should we add the Federal Reserve in there? Ask what the ratio of debt guaranteed is now vs what they actually have stashed away? Nah.

Should we add the Federal Govt in there? *snort* "Economic Stimulus Package of 2008"? - $168B of pointless $300/taxpayer rebate? Heh. And the new $700B plan to have the US treasury buy up bad debt? Well - I guess it helps keep the financial companies solvent. Dunno how it helps the homeowner, who now has not only to pay for the mortgage they can't afford, they have to pay the taxes to pay for the bad debt to keep the brilliant finance guys in suits.

The entire financial system seems to me to be a house of cards, with the housing market as the ground floor.

Which is to say: Value is arbitrary. Money is only worth what we pretend to agree that it is worth. It has no intrinsic worth. The worth of everything else - real estate, commodities, pokemon cards, a person's life - is all tied to something that is entirely fictitious.

So, given that the values of all these things are fictitious...

While the cost of housing maintained some sane relation to the median income, which, y'know, it did for a long time, an investment in one's home - and in real estate in general - was a solid, sensible thing: an investment that both had utility, in that it gave you a roof and four walls, with a value that kept pace with the cost of living. People's incomes were tied to the cost of living as well, as a minimum yearly pay increase, with raises for merit, etc, being that amount which increased above the cost of living increase.

Buying a house made good sense. Instead of paying all your housing money to a landlord, you paid part of your money to yourself, and part to a bank, and eventually, you paid off your mortgage. And the value of the thing you bought increased as the costs of everything else did.

You never lost money. Unless you couldn't pay your mortgage, in which case you were fucked.

I must take a moment here to mention that there is something aesthetically perfect about a well-made margarita.


So, lets look at a case study. We will examine the house my parents bought in 1970 to median income.

Median income (not adjusted for inflation):
* 1970 $8,734
* 2007 $50,233

The increase in unadjusted income is 575%

In contrast, the unadjusted cost of the house my parents bought in 1970 has increased 1806%:
* 1970 $17,500
* 2007 $316,000

What this means is that a person making the median income in 1970 could, assuming that they could apply their entire gross income to the project, pay their house off in about 2 years, while a person in 2007 making the median income would have to pay their entire gross income for 6.29 years to pay off the house. Which means that, all other things being equal, a person today is more than 3 times less able to pay for their homes than they were in 1970.

All other things being equal.

That's assuming that there was no oil crisis, or food pricing crisis. Or $16 billion/month wars for control of the oil.

So we have an unsupportable housing market as the ground floor of a house of cards. On top of that are the lenders who supplied the easy credit that made it possible/necessary for people to pay outrageous prices for their homes. On top of that are the investment banks who purchased those loans. On top of that are the institutions who guaranteed the value of those loans.

On top of that are the Various & Sundrie organizations that believed all that crap and supplied the money for all those folks to do all this shit. That would be the people who put money into Mutual Funds, and Money Markets, and CDs, and indexed funds, and so on.

Every government effort so far appears to be directed at layers 2 and 3 of the House 'o Cards. If only we can support the financial institutions that made all the bad loans, and the institutions that guaranteed those loans.

Nothing that I've seen has addressed layer 1.

That would be encouraging bad behavior.

Corporate bailouts are okay. Personal bailouts are not.

So people who are manipulated into making poor decisions need to be held accountable - the corporations that did the manipulation? not so much.

In the meantime, the house of cards starts to fall.

The problem is, we're trying to save the house of cards. We're trying to keep the structure intact. It won't happen. If this sneeze doesn't knock it down, the next one will.

The only way to take apart a house of cards with any chance of success is to support the base while taking cards off the top. Instead, we're letting the base collapse and hoping the rest settles intact once it finishes dropping.
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