Ever notice how banks use tortuous and disingenuous language to describe their affairs? We get non-performing things, quantitative easing, risk based pricing, (which is what they call it when they jack your interest rates up to 30% or more,) and a whole raft of other verbal nonsense, language that is deliberately meant to mask reality and paint a rosier picture of events wherever possible. Losses too painful to endure are simply written "off balance sheet" by accounting tricks. Everyone talks about "transparency," yet they use this language to hide things that are obvious to anyone who reads and thinks. And the big thing they are really hiding behind all this deceptive language is one word: insolvency.
Case in point: Here's a quote from California Controller's November 2009 Analysis - Guest Article by Dr. Randall Zisler.
"A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. (In the state of California alone)... We estimate another $500 billion to $750 billion of unscheduled maturities. Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing. Marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent, especially as much of the debt is likely worth about 50% of par, or less."
Read that again... Unscheduled maturities? Let me translate.
The crisis of unprecedented proportions approaching is the next big wave of mortgage resets for Option ARMs and other "exotic" real estate "products" that were hawked by lenders during the great housing boom. The piper has played, with house flipping, home equity loans, refis, trips to home depot for those granite countertops, and now the piper must be paid. With unemployment north of 17.6% (U-6), and rising, these trillions in mortgage resets will result in a new tidal wave of "unscheduled maturities." What a euphemism! Unscheduled maturities? Let's say it plainly: "DEFAULTS."
The nub of this problem is the statement that "marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent...." The clear truth in this statement is that banks are insolvent now. If normal accounting rules apply, many would be defunct. This is why Mark-to-Market accounting regulations have been suspended, allowing banks to carry underwater residential, and now commercial loans, at "Mark-to-Fantasy" values. But reality is this: the loan is in default, the "unscheduled maturity" was a formerly employed paying customer who has lost his or her job and mailed back the keys. The loan will never "perform" again, no matter how many tricks the accountants roll out. It has done all the maturing it is ever going to do. Like an over-ripe fruit, it has fallen from the lending tree and is now simply rotting on the ground.
The banks know this, but insist on pretending otherwise. This loan, like the house, is now worth only what someone else is willing to pay for it, and no one in their right mind would pay full value when they know the house has lost 50% in just two years time. So the banks have tried to sell off all this rotten fruit at a farmer's market called "The Fed" where they trade their bad produce as collateral for zero interest loans. They've also asked Uncle Sam to back them up to the tune of trillions. Yet they remain insolvent--and this is just from the damage already incurred in this crisis. I have some more news for them: the "unscheduled maturities" have been in a lull lately, but they are about to resume with hurricane force. The banks know this as well, because they set up all these loans to reset to higher, unaffordable payments, and they know exactly when those resets will occur.
As I have said many times, this crisis, the whole of it, was designed and delivered by the banks. They created it, and now they will perpetuate it with all this squirming denial and bogus accounting. That's the world you are living in. Now... Make damn sure your credit card is paid on time--or else you might be considered a "deadbeat." No, that's actually a term bankers apply to people who pay off their card balances in full each month. (They can't collect any interest on you so you are called a "dead beat.") Those that carry huge balances at 30% interest are known as "preferred customers."
Case in point: Here's a quote from California Controller's November 2009 Analysis - Guest Article by Dr. Randall Zisler.
"A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. (In the state of California alone)... We estimate another $500 billion to $750 billion of unscheduled maturities. Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing. Marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent, especially as much of the debt is likely worth about 50% of par, or less."
Read that again... Unscheduled maturities? Let me translate.
The crisis of unprecedented proportions approaching is the next big wave of mortgage resets for Option ARMs and other "exotic" real estate "products" that were hawked by lenders during the great housing boom. The piper has played, with house flipping, home equity loans, refis, trips to home depot for those granite countertops, and now the piper must be paid. With unemployment north of 17.6% (U-6), and rising, these trillions in mortgage resets will result in a new tidal wave of "unscheduled maturities." What a euphemism! Unscheduled maturities? Let's say it plainly: "DEFAULTS."
The nub of this problem is the statement that "marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent...." The clear truth in this statement is that banks are insolvent now. If normal accounting rules apply, many would be defunct. This is why Mark-to-Market accounting regulations have been suspended, allowing banks to carry underwater residential, and now commercial loans, at "Mark-to-Fantasy" values. But reality is this: the loan is in default, the "unscheduled maturity" was a formerly employed paying customer who has lost his or her job and mailed back the keys. The loan will never "perform" again, no matter how many tricks the accountants roll out. It has done all the maturing it is ever going to do. Like an over-ripe fruit, it has fallen from the lending tree and is now simply rotting on the ground.
The banks know this, but insist on pretending otherwise. This loan, like the house, is now worth only what someone else is willing to pay for it, and no one in their right mind would pay full value when they know the house has lost 50% in just two years time. So the banks have tried to sell off all this rotten fruit at a farmer's market called "The Fed" where they trade their bad produce as collateral for zero interest loans. They've also asked Uncle Sam to back them up to the tune of trillions. Yet they remain insolvent--and this is just from the damage already incurred in this crisis. I have some more news for them: the "unscheduled maturities" have been in a lull lately, but they are about to resume with hurricane force. The banks know this as well, because they set up all these loans to reset to higher, unaffordable payments, and they know exactly when those resets will occur.
As I have said many times, this crisis, the whole of it, was designed and delivered by the banks. They created it, and now they will perpetuate it with all this squirming denial and bogus accounting. That's the world you are living in. Now... Make damn sure your credit card is paid on time--or else you might be considered a "deadbeat." No, that's actually a term bankers apply to people who pay off their card balances in full each month. (They can't collect any interest on you so you are called a "dead beat.") Those that carry huge balances at 30% interest are known as "preferred customers."
