The Banks are stll insolvent

[AllentownJake]

They are sitting on over a trillion of dollars of this paper (about $1.1 trillion to be exact) and several hundred billion is severely impaired or even worthless. Wells Fargo, just as one example, has (as of its last 10Q) $106 billion of second lines outstanding on balance sheet, and God only knows how much in SPVs (Wells is known to have significant off-sheet exposure "inherited" from Wachovia.) Let me put this in perspective for everyone.

*
Essentially all of the first mortgage loans written in California and Florida after 2003 are underwater. Even in parts of the state (such as my area of Florida) that have been "relatively" untouched (compared to, for example, Naples) homes are below 2003 prices. In "bubble" areas prices have in many cases returned to levels such that anything purchased before 1995 or thereabouts is underwater. In some parts of SW Florida you can buy a home that sold for $500,000 for $50-75,000, cash, right now. Those are 1970s and early 1980s prices. While that is an extreme example the most bubbled areas are the ones with the greatest over-representation of paper from Wells (and ex-Wachovia), JP Morgan/Chase (ex-WaMu) and Bank America (ex-Countrywide.)

*
Many of the homes in these areas, especially in Florida, that have undergone this sort of collapse in price have a literal negative value. That's because the former owner has departed and the power was shut off for non-payment; the banks have constructively abandoned these homes. In Florida if you do this within a reasonably short period of time mold will become established inside the sheetrock. Once that happens the home must be gutted to the studs or razed, and the cost of doing so exceeds the value of the bare lot. Then there are the delinquent property taxes, frequently in arrears for two years or more at this point. Many people have said that "oh there's a decent recovery" on all this paper. No, in many cases, there is is in fact no recovery at all, and that's a fact.

*
In essentially every case a 2nd Line (HELOC or "Silent Second") behind a first in Florida and California taken out since 2003 is worthless if the primary note goes into foreclosure. That's because such a second is a subordinate lien and entitled to nothing until the first is fully satisfied. But the first can't be fully satisfied as the home's value is less than the first line's balance. As a consequence these loans are worth zero - literal zero. Wells may have as much as $25 billion of this worthless paper on balance sheet all on its own and Bank America may have as much as $30-50 billion. (Pinning down the exact amounts is impossible as the companies do not disclose geographic concentration metrics necessary to do so.) It is not unreasonable to believe that $200 billion in junior lien losses are being hidden - right here and now - which is sufficient to detonate these institutions even without the primary mortgage losses being counted!

This is the truth behind the housing mess and our government and banking regulators are engaged in an active cover-up to prevent recognition of the truth. Banks were given the ability to do other than "mark to market" earlier this year, and they have roundly abused this privilege to hold both first and second lines at ridiculously above market value. But Treasury is also interfering with contract law in an attempt to "protect" bank balance sheets. How? By violating lien priority - again - exactly as they did with Chrysler and GM.

http://market-ticker.denninger.net/

[MercutioATC]

1. "The Force can have a strong influence on the weak-minded"

Still believe that the economy is improving?


"These aren't the droids you're looking for"

http://www.youtube.com/watch?v=k1rlThKe1qo

[AllentownJake]

2. The President best be careful

Declaring the recession over could be his "Mission Accomplished" moment.

[MercutioATC]

5. My opinion of Obama has changed since the election.

I see two choices:

1) He had NO idea what he was getting into and is being forced to wing it. He's "playing it safe" by using "established experts".

2) He's playing the "Wizard of OZ" role. He may have the best of intentions, but he's not playing openly...he's making grand statements and trying to direct events from behind a curtain.


And, lest I be accused of trolling, he was always a better choice than McCain.

[AllentownJake]

8. My opinion is rather simple

He's a Law professor and politician. He isn't a finance guy. He isn't naive or stupid.

I'm guessing he has about the same understanding of what the hell happened, what is going on, and what to do as the average American. He's picked some people to run this for him, and as far as oversight. He really isn't equipped to understand this too well. Tim Geithner and Larry Summers have sold him on a course of action and it will play out.

[MercutioATC]

9. I'm an air traffic controller...and even I knew that things looked REALLY ugly.

I also knew that the issue was endemic in our society and had to be addressed at a level a bit deeper than trillion-dollar no-strings-attached giveaways.

Egad! A third possibility. Obama might not be as good at defining problems as I am. (I'm trusting that's not really the case)

[AllentownJake]

10. All I know

Is everyone got a giant warning about what will happen if we don't change course and clean up our act. From what I'm observing, people are not cleaning up their act. In fact they are getting more brazen with the bad behavior that caused this.

[MercutioATC]

11. I thought I just said that.

:P


Seriously, you and I mostly agree on this issue. I'm trying to remain optimistic about Obama's "plan", but it's pretty much all smoke and mirrors at this point.

Realistically, he's either scared, in on it, or not as bright as you and me.

[AllentownJake]

13. I'm an auditor

and I agree with Karl (the guy who wrote the article in the OP) there is a lot of fraud going on right now. Particularly in the banking sector. It is like Enron on steroids. If mark to market hadn't been revoked, JP Morgan would not be posting a profit today and it's CEO and executives wouldn't be paid a giant bonus at the end of the year. The losses are still there on the books, the government has just decided to structure things so the banks recognize them over time.

I wouldn't buy into Real Estate right now, there is a heck of a lot of inventory that the banks are keeping on their books to prevent them from recognizing a loss because the accounting rules have been changed to encourage them to do so (they are trying to prevent a total crash in housing prices).

[MercutioATC]

14. But who is ultimately to blame for that?

WE patronize these financial institutions and WE elect the people responsible for regulating them.

I believe the issue of "blame" has been oversimplified. Financial institutions are to blame for their circumstance because those circumstances are a result of their wanton pursuit of short-term gain...but the came can be said of consumers.

[AllentownJake]

15. I blame TV

not the TV itself, nor the programming on it. I just blame TV because it has become the primary entertainment vehicle and place most Americans get their information. We really have evolved into a society of very little substance and even less character. Everything in our society revolves around that box.

[MercutioATC]

16. ...and I blame US for elevating TV to that status.

My point is that there has been harm at many different levels, but who deserves blame is often dependent upon what specific wrong is being addressed. There's no single villain.

[AllentownJake]

18. Here is the problem

Over the past 80 years beginning with Freud, studies have been done to human beings. These studies have resulted in a whole bunch of research on what are the best way to manipulate people to do things they wouldn't ordinarily do. They've essentially broken down man psychologically to find out how to trigger man's emotional impulses. Add onto that, that everything has been made insanely as complex as possible by the corporations through their armies of lawyers US really doesn't have a fighting chance. They are simply sheep for the slaughter.

[MercutioATC]

21. In this country, laziness is the only excuse for ignorance.

Whether it's the iPhone on one's hip or the PC at school or it requires a trip to a public library, almost everybody has almost every bit of information amassed by our species at their fingertips. Information IS real power and, in this country, we have godlike access to it.


There's no valid excuse for being a "sheep" in the U.S.

[AllentownJake]

24. People don't ask questions

Till the train stops arriving on time. Just human nature. There were plenty of Romans scoffing at the idea that the Roman Empire was vulnerable months before the barbarians arrived at their gates and sacked their city.

[MercutioATC]

29. I vehemently disagree.

Inquiry is a fundamental element of "human nature". Asking questions and seeking answers is the cornerstone of our dominance as a species...and that is exactly what made Rome the global influence it was for a time.

Rome fell when people forewent their nature in exchange for short-term benefit (and because of a few poor executive decisions), not as a result of human nature.

[99 Percent Sure]

32. MercutioATC, you should have been in the

Obama cabinet, whether as Treasury, Education or Commerce secretary.

I'm going with the president not being a financial whiz and so relying on charlatans like Summers and Geithner to advise him on the mammoth financial problems that they contributed to in the first place.

So far, though, I've not heard the president actually declare the depression recession as over. Really, all indications point to another big plummet in the stock market soon. Roubini is calling it a "phantom economic recovery."

Nouriel Roubini told the BBC that he is concerned about the growing gap between the "bubbly and frothy" stock markets and the real economy. Over the last six months, the Dow Jones Industrial Average has risen about 45%. But Mr Roubini says he sees an economy where consumers are "shopped out" and "debt burdened".

Based on the run up in share prices in recent months, investors appear to be betting that good times are around the corner. A view not shared by Mr Roubini.

"The crisis is not yet over," the New York University professor said. "I see an economy where the consumers are shopped out, debt burdened, they have to cut back consumption and save more. "The financial system is damaged... and for the corporate sector I don't see a lot of capital spending because there is a glut of capacity."

Mr Roubini believes US house prices have further to fall, straining America's fragile recovery. 'Frothy markets' Property prices have already declined sharply. According to the National Association of Realtors, the national median has dropped almost 13% from a year ago to $177,700 (£110,100).

Many believe the crises in the residential market could spread to the commercial real estate market causing more headaches for the banks. So where does the "froth" in the markets come from? Mr Roubini - like many other economists - believes it is engineered by the Federal Reserve and the government which has been pumping cash into the economy to dampen the pain of the recession. "There is a wall of liquidity chasing assets," he said.

"But I think that there is a growing gap between what is the asset prices and the real economy." Although he thinks there will be a correction, he believes some of the mistakes of the past can be avoided if reforms are implemented.

www.rgemonitor.com/blog/roubini/

[MercutioATC]

35. Not me, but SOMEBODY with SOME aptitude for critical thinking who wasn't in somebody's pocket.

This is just common sense. The issue is that we've lived without common sense for so long that our entire financial system is based on random nuanced things with no actual substance. People who have played that game for years...like Geithner...can "spare us the pain" for a while with some lip service while continuing business as usual and Obama (or whomever appoints them) can still claim to be acting "responsibly" by hiti==ring "people who understand the system"...always with the whispered threat of dire circumstances if the status quo isn't maintained.

...but when you boil it all down, making substantive change isn't "risky". Hell, it's not even "bold". It's the only sensible course of action, and a failure to do so is the only real long-term risk.


That's just common sense.

[DireStrike]

36. "We patronize these institutions"

And they are massively anti-competitive. There is no substantially different choice.

And in the end it all ties into the same market, with the same brilliant greedy people grabbing everything they can and making a run for it.

[Eliminate_Capital]

27. I agree

The general public has nothing to fear though - because there are more of us.

And I have the slightest inkling, that the wealthy sub-human assholes at the top are starting to shake in their boots. They know what's coming - and it isn't another check for 30-million.


"In a democracy the poor will have more power than the rich, because there are more of them, and the will of the majority is supreme."

Aristotle

[RaleighNCDUer]

17. Even you knew that things looked really ugly -

but could you come up with a plan to do something about it?

As said above, he has no special training to this sort of situation - his only advantage dealing with this is that he has access to the top advisers in the country. I have no doubt he thought it looked ugly too, then he turned to the mainstream for solutions. The radicals were saying one thing, the mainstream were saying another. If he went with the radicals, and their plan failed it would destroy his presidency; if he went with the mainstream and their plan failed, well who would fault him for not being radical enough? His presidency would survive, though crippled, and he could set about getting done what he set out to do - restoring the country to constitutional standards.

[AllentownJake]

22. The Mainstream guys

There is no easy plan to fix things, I will agree with that. The mainstream wants to kick the can. Since 1980, that has been the solution to every downturn. Kick the can. Well we've kicked the can now to a point where the can is against the wall and can't be kicked again. The next time you kick the can it's going to bounce off the wall.

Is it his fault. Nope. Has he done the things to prevent the next crisis? No. To be fair he has only been around nine months.

Has he kept up the same habits of the last guy of bringing in Industry insiders who seem to revolve between Washington D.C. and NY making tons of money as they make the circle. Yes.

He's decided to kick the can. He is no worse than his predecessors for the last 30 years because the last guy who decided to actually take a look at the problems and be honest with the American people got his ass handed to him electorally by someone selling kick the the can.

99% of the problem is not Barack Obama. It is the American people. At the end of the day. The mainstream guys wouldn't be mainstream if kicking the can as opposed to facing hard truths was not popular.

[JDPriestly]

30. Americans have been brainwashed into believing that, as a nation, we will,

ultimately, always prevail. Just a few years ago, I heard comments at a meeting of Democrats about what an amazingly wealthy nation we are and how we will never know real poverty. Nonsense. Americans overestimate the poverty and backwardness of the world and, at the same time, overestimate the wealth of the U.S. It's a fool's paradise.

President Obama is in a difficult situation. Because Americans are so convinced that we are such a wealthy country, they will reject any leader who tries to tell them the truth. The President has to wait until Americans realize the self-evident truth about our economic plight. At that point, and only then can he respond with the kinds of powerful solutions we need.

We often forget that by the time FDR began the New Deal, the depression was well underway. Americans were no longer in denial about their economic problems. As long as the Tea-Baggers are as loud as they are, we can be sure that the very Americans who are in the worst trouble are still denying it.

[AllentownJake]

31. The American people are the biggest problem

As long as Americans believe that they are special or different or better people than the rest of the world, we are fucked. There is a reason Europe acts the way they do. They tried to rule the world and nearly destroyed themselves.

President Obama is a politician. He's going to do what he can to stay in power. What his personal belief on things are, we will never know because as a politician he holds those close to the vest. My problem with the President is he has a unique opportunity in history to start the process of going after the bad guys and he is doing the exact opposite. It wouldn't be that hard for him to order Attorney General Holder to investigate the worst of these criminals and bring them to justice. Instead, you have this looking forward approach which only ensures, that these guys now funded with taxpayer dollars are going to do what they did again, probably in an even bolder way. Why he's chosen that path is a question for President Obama not me.

[JDPriestly]

33. I agree with you 100%

[MercutioATC]

26. A painless solution? No, one doesn't exist. We've spent too long on this path for an easy exit.

A better solution than Obama's? Absolutely.

Start with requiring X percent of bailout funds accepted by a bank being used for business or consumer loans within 6 months? How about at least putting SOME conditions on the money so banks didn't just borrow it from the government (taxpayers) at 0%-.25% and use it to buy Treasuries (which creates a situation where we're not only handing money to banks, but we're actually PAYING them to take it)?

Maybe some regulations that would prevent bailed-out banks from using bailout money to invest in the same credit default swaps that were an instrument of such volatility in the recent past?

Perhaps something so bold as to actually tie tax incentives to hiring domestically...and implementing trade policies that legitimately leveled the playing field for those who employed U.S. workers?


I could go on all day...and I'm not the leader of the free world, I'm just an air traffic controller.

[Eliminate_Capital]

25. No Real Change Yet.

In reality, all Obama really has done so far, is: inspire a lot of people. I'm a bit disappointed with him. But, time will tell. The health care system isn't the ONLY thing that needs to be changed in this country.


"In a democracy the poor will have more power than the rich, because there are more of them, and the will of the majority is supreme."
-Aristotle

[Eliminate_Capital]

23. The president best be careful.

And that would be pathetic if that was his, "Mission Accomplish moment."



"In a democracy the poor will have more power than the rich, because there are more of them, and the will of the majority is supreme."
-Aristotle

[SoCalDem]

3. 50-75K?? Where?? I want one..

That's even cheaper than here in CA.. W could buy one now, rent it for a few years until we retire..hmmmmm:)

[AllentownJake]

4. Evidently South West Florida

Apparently the places that had the biggest booms are experiencing the biggest busts.

[MercutioATC]

7. Over a year ago, a co-worker bought a condo in FL for $84k...

...that sold NEW in 2005 for over 230k.


...and values have dropped further since then.

[Fire1]

6. K&R n/t

[Silent3]

12. Ssshhhhhhh!

Be very quiet and maybe no one will notice!

[Eliminate_Capital]

19. Abolish Capital

"In a democracy the poor will have more power than the rich, because there are more of them, and the will of the majority is supreme."
-Aristotle

[Silent3]

20. There's nothing like the great appeal...

...of a simplistic solution devoid of nuance.

[leftstreet]

34. +1

[Echo In Light]

28. Thanks for posting

[flyarm]

37. my son and daughter in law just sold their condo in LA, 1 street away from Bev Hills..

then the bank sent in a company to appraise ..and it didn't appraise for what they bought it for 2 years ago..nor the price they sold it for..so now they lost the sale!

[troubledamerican]

38. The Banks are beyond money. Money as a concept was so 2008.

Onwards to a global, virtual, simulated casino-currency based on "Steroid Derivatives" and "negative-percent interest rates"...

We ain't seen nothing yet.