from
(snip)"The new 2008 year will smash that notion, as an absolute avalanche of failed mortgages will slam the bank system and financial sector in general, the majority being prime mortgages. SHOCK & AWE IS RIGHT AROUND THE CORNER ON PRIME MORTGAGES, A FACT THE BANKERS ARE KEENLY AWARE OF!!! The villainous failed mortgages have a few traits in common. These primes are adjustable rate mortgages (ARMs) with harsh resets. They contain destructive features certain to cause as much pain as laughter for their insanity. Recall they are prime mortgages with lax features resembling subprime loans without the higher rates. A reaction to the incredibly flimsy inadequate Subprime Mortgage Freeze Plan, with dire descriptions of the prime mortgage avalanche can be found in the December special report to the Hat Trick Letter, entitled "National Bailout & Looming Mortgage Disaster."
Only 150 to 225 thousand subprime mortgages will be addressed by this flimsy HOPE NOW freeze plan, and nothing among the looming prime mortgages heading for certain default. The innovative mortgage products face ruin. Large cross sections of newer mortgages, written since year 2000, are under-water badly. Their loan balances are much greater than their home values. THE NEW PHENOMENON IN 2008 IS RECOGNITION OF ZOMBIE LOANS, ZOMBIE HOMEOWNERS, ZOMBIE CONSUMERS, AND ZOMBIE BANKS. They are bankrupt without declaration; they are walking dead. "(snip)
(snip)"Wall Street and other major bankers continue to soil their pants. They realize several looming tragedies:
* Prime 'AAA' mortgage bonds have lost roughly 20% of value
* Innovative flexible adjustable mortgages are due to default in droves
* Enormous growing list of under-water mortgages are beyond rescue
* Big banks are facing dire insolvency threats, as new defaults approach
* Enormous bond writedowns have only begun for big banks
* Insolvency can turn to bankruptcy with more debt rating agency downgrades
* Mortgage bond investors contemplate lawsuits, accusing Wall Street fraud
* Wall Street banks face the prospect of over $1 trillion in mortgage bond buybacks
* Rescue & remedy will trash the USDollar and catapult the gold price
As a preface, one should know that politicians did not advance this plan. The key initiators of the HOPE NOW project were three banks. It was an alliance led by the Federal Deposit Insurance Corp (insurer of banks), along with big banks and their lobbyists from Citigroup, JPMorgan, and Wells Fargo. These banks in my opinion are insolvent, soon to be forced into bankruptcy as the next round of the mortgage debacle unfolds from the 'innovative' adjustable and option laden mortgages. They all face bankruptcy, insured by the FDIC. If lawsuits are filed and that road is traveled, declared bankruptcy is assured. The rescues to save the Ruling Elite will lift gold and trash the USDollar, as much from a new unprecedented round of monetary inflation, as from destroyed image of the US financial system. Freezes never work. When in college, my memory is vivid of the lunatic Nixon Wage Price Freeze. When it lifted, the price inflation rampage was the worst in modern history. My suspicion is that when any mortgage freeze is lifted, both mortgage rates will rise sharply and mortgage bonds will fall sharply in value.
Few have bothered to think about the infectious disease of moral hazard, to consumer and household reactions. Many economic participants will feel left out with the current rescue, against a backdrop of watching colossal fraud go unpunished. They will possibly act destructively, an intentional effort to destroy their credit rating so they can participate in national bailouts. Many live in homes with negative home equity. They might feel above the rules, immune to impact of their actions, engrained in destructive habits, feel powerful from a reprieve, want to be included, or just not care. They will feel they have nothing to lose. The likelihood that property taxes will be paid, water & sewer fees paid, lawns mowed, hedges & trees pruned, garbage removed, broken windows repaired, holes in walls filled, driveway cracks filled, shingles straightened, liens on the property resolved, these are all in doubt in my book. Pride in ownership will turn ugly, into a free ride game. Practicalities are strained to the extreme. A zombie comes to learn to act with disregard, disrespect, and disobedience. Henry David Thoreau wrote 'Civil Disobedience' almost two centuries ago in response to the Spanish Civil War, yet another false flag self-inflicted attack. That was done to the USS Maine vessel off the Cuban coastline. Expect such disobedience to be practiced widely in reaction."(snip)
While author Jim Willie is often overly pessimistic, his point about moral hazard is well taken. The recently announced 'subprime mortgage bailout' plan offers huge positives for the narrow group of homeowners that qualify for benefits, among them ...
- officially reducing the total amount of dollars the homeowner must pay to his mortgage lender over the life of his mortgage ( and by a signficant amount i.e. $100k on a $500k mortgage), or put another way the actual total purchase price of his home will be officially reduced.
- implied 'insurance' that if / when a bailed out homeowner is unable to afford his property taxes and/or home maintenance, that state / local gov'ts will step in and cover ( after all a state / local gov't doesn't want to be responsible for evicting a bailed out homeowner after the federal gov't just rescued him )
However, in order to qualify for the gov't bailout plan, the homeowner's credit must be sufficiently bad that they have no chance of refinancing through normal channels. But as the author points out, it's fairly easy for a stressed homeowner to 'ruin' what's left of his credit ... and enjoy a few luxuries in the process ! And after 'ruining' his credit, he gets to pocket a 20% savings on the total price of his house, plus a good possibility of having somebody else pick up the tab for his property taxes / home repairs etc. As the author points out, the moral hazard that was clearly established via the mortgage bailout plan has the potential to morph into a huge 'free ride game' with little or no additional downside for the additional stressed homeowners who attempt to play this game.
Of course, there's no such thing as a 'free ride' ...
!



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