The Continuing Crisis- Buy a $3.5 Million House With No Down and No Income Verification

Anybody who thinks that the air is out of the housing bubble or that there is any end in sight to the financial debacle need only follow the title link to the real estate listing for a mansion in the pricey Hollywood Hills neighborhood in Los Angeles.

Here is the proof that the trillions of dollars worth of interventions and bailouts promulgated by the federal government over the past two years not only will fail of their stated purpose, but create more problems of the same type they purport to solve. Worse, the people who created the debacle will continue to be rewarded for their criminality and insanity at the expense of the population at large, and the biggest losers of all will be the prudent and responsible.

Yes, this 8,000 sq. ft. palace can be purchased with no money down and no income verification ("liar loan"). Here is the text from the Redfin listing:

BANK OWNED LANDMARK ESTATE IN HOLLYWOOD HILLS! Financing available w/NO INCOME VERIFICATION! Move right in & live like a king w/ 360 degree views of the entire city! Move-in condition & the pride of the previous owner. Privately gated, well cared for & approx. 8,000 sq ft w/ 5 bdrms, 2 master suites, office, library, media, office, maids, bonus rooms, 3 car garage, lg motor court. Bank says sell & will help you buy it! Move in quickly without the hassle of finding a bank to approve your loan!

Is this for real? If it is, then we are in worse trouble than we thought, and we can count on many more foreclosures, many more failed banks, and many trillions of dollars more for bailing them out. There's no way this house would be advertised in this fashion if sensible lending standards were being enforced.

Instead, we are now ramping up for the next big wave of defaults and foreclosures. All the various housing rescue programs and financial bailouts have accomplished is to insulate the financial houses from the results of their lunacy and malfeasance, while providing the financing for the next wave of unrepayable mortgages. Right now, the FHA is underwriting loans for 4X the buyer's income, with 3.5% down-95% of all home loans for moderate-priced housing are now FHA insured. And, as we can see from this, the worst lending practices have not ceased. And why should they? Our authorities have done nothing to tighten lending standards or impose regulations that might prevent a repeat of the past 10 years. Instead, they're pulling out every stop to revive the credit-creation machine and bubble economy of the 2000s.

The situation is so hopeless and our leadership so corrupt and clueless that in my weaker moments, I'm tempted just to acquiesce to the Zeitgeist of the times and Get Mine. I mean, why am I sitting here struggling to pay off my credit card debt while my hours and pay are chopped, and my job possibly will not exist by the end of the year, when I could do what the people involved in this house are clearly doing, which is setting up a straw deal to defraud the mortgage lender, whose agent is probably in on the deal and in line for a "consideration" from it. Obviously, I can still get any kind of mortgage I want for any kind of property, and the lenders are clearly not concerned with potential losses, because the U.S. Treasury is picking up the tab for them.

So why should I let a few bills, a shrinking paycheck, and the possibility of job loss deflect me from enjoying the lifestyle I so richly deserve? Why should I not lie about my income? Why should I not just get a $4.4 M liar loan with $500K cash back at the closing so I can quit my crappy job and spend a year or two living a fantasy lifestyle rent-free- for if they'll get me a $3.9 M liar loan why not $4.4M? I'm not going to be able to pay back $3.9M any faster than $4.4M, and given that there are more foreclosures in front of us than behind us, it will take the the lender at least a year of non-payment on my part to even file an NOD, and another few months to serve it on me, and then at least another year to go through all the other stages of the process. In the meantime, I'll have $500K to live on, which will free me from having to work for a living and give me cash for a few shopping sprees at the all the trendy stores, because I'm sure sick of shopping in consignment stores in Edgewater.

Jeez, I could even buy a CAR. I want a Tesla Roadster. Why not? All things are possible with the magic of the NINJA loan, thanks to the hundreds of billions of dollars in TARP and TARF funds shovelled into our financial system.

Sounds like a great vacation to me, if you don't consider the possible tax consequences pursuant to the cash back. And when it's over, I can just file bankruptcy. And anyway, there are so many millions of people out here who also got and spent hundreds of thousands of dollars via equity extractions that they can't pay back and strictly speaking owe taxes on, that it will take the IRS forever and a day to get to me, and I'm sure the bankruptcy receivers won't make me give back the Sonia Rykiel sweaters or the $45,000 Hermes croc Birken bag.

That's if there still are any receivers, or process servers, or banks, remaining, which is pretty doubtful considering the situation that is becoming manifest as the unravelling of the global economy speeds up, and our government wonks just keep promoting and subsidizing more of the crap that created this debacle to begin with.

Because, if this is how the bailout is working, and this is what's possible under the new, "reformed" financial regulations, then there will so many defaulting jumbo loans and commercial loans, and so many vacant mansions, condos, houses, apartments, shopping centers, and office buildings, I'll be able to squat in the place indefinately, and my only problem will be where to find food and how to get around in a country where the grocery store shelves are not being replenished and we can no longer afford to buy the oil we need for the most basic services and operations of our fragile, energy-dependent society- which will no longer exist.

This is the kind of thing I think of when I read of three orphans and their gaurdian being evicted from a junk apartment in the Northpoint apartment building because of the death of the kid's grandmother, who was the legal lessee. A couple of commenters on Craig Gernhart's blog, who are clearly oblivious to what's taking place around us at every level of our economy, stated that they didn't think their tax money should have to pay for housing for these orphaned children. Well, they need to see what their tax money is paying for.

We're being stripped of our remaining wealth out to guarantee the profits of the members of the Financial Kleptocracy, and to insulate them from any risk. Our system of taxation and network of subsidies and incentives is now set up to funnel as much tax money as possible to the perpetrators of financial fraud, while services we badly need, such as minimal support for orphaned or abused children, are decimated, and the industries and technologies that could rebuild our economy and provide us with the advanced technologies we will need to retain a reasonably comfortable life in a fuel-short future, are still-born for lack of investment capital.

Flogging the Corpse

Of course, the Treasury and Paulson are going to step in and throw money at the failing Detroit car makers, so you have to wonder why they even bothered to discuss it in Congress. We seem to waste a lot of time and energy in this country in hot debates over things that are really foregone conclusions, even though I must say I'm grateful for the efforts of Shelby and Armey to block the diversion of yet another major chunk of public money to yet another failing, badly run industry that ought to be allowed to die with dignity.

Paulson is going to use some of the TARP funds to prop up these sclerotic, uncompetitive businesses with their overpaid executives and bloated Union wages, thus removing all incentive for these companies to evolve into concerns that could compete under rapidly changing conditions,and supply us with useful products in the times ahead- times in which the market for automobiles will shrink drastically. We will be paying an even larger portion of our taxes to subsidize an obsolete industry while the Koreans or Russians or Chinese build the rail cars, wind turbines, innovative nuclear and coal technologies, super-efficient solar panels, and other new and yet-to-be-conceived-of technologies and products we will be needing for most people to have any motorized transportation, electrical power, heated homes, reliable supplies of clean water or decent sanitation, or any other technological amenity that enables a civilized existence for hundreds of millions of people.

We won't be inventing or manufacturing these things here in the U.S., because we're casting all our energy, and our money for years to come, at obsolete industries and at maintaining the fiction that we can do things exactly the way we've been doing them for the past forty years.

The denizens of Detroit, likewise, will continue in their Cargo Cult-like fixation on the dying auto industry, and continue to pour all their resources and energies into reviving its twitching corpse, instead of recreating their economy on another template, and making the city a place that any other sort of business might want locate in or commit to. This is the typical pattern of dying civilizations. A major cause of the deterioration and death of a culture is the tendency most people have to remain fixated on that which made them successful in the past, in the face of vastly altered conditions. I've always said that the best thing that could happen to Detroit is for all of the Big 3 to roll over dead, so that the citizens of that poor battered city could focus on rebuilding their economy along lines more in keeping with 21st Century realities. But as long as our politicians and policy wonks are controlling the economy, we will just keep on throwing our resources at investments gone bad, while nipping emerging industries in the bud.

Given that the rescue of the financial industry is an admitted failure, I don't expect the domestic auto makers to revive under the ministrations of the Feds, but I do expect that the $14 Billion in loans under consideration won't be the last cash call. Similarly, we will keep throwing money at the failing financial firms, and have committed around $7 Trillion in loans, buybacks, mortgage assistance, and general assistance to the failing effort, while failing to generate jobs or new investment in the private sector. General Motors has $60 Billion worth of debt, and its only profitable division, GMAC, committed suicide with its DiTech 125% mortgages. The auto rescue will probably entail over $100 Billion in loans that will most likely never be repaid; these companies will still fail, for they have rolled rapidly downhill for over 30 years, thanks in no small part to government assistance and accommodations that have enabled them to cling to outdated business models and products.

Locally, we continue to create more TIF districts even though almost every TIF district designated to date has failed of its stated purpose, sometimes spectacularly (remember March First?). Others have merely produced revenues that are less than if the development had not taken place, and all are funneling money from each tax hike away from essential municipal services, resulting in revenue shortfalls and the steep deterioration of essential services and infrastructure. Worse, much of the touted retail development our taxes paid for is failing. Border's Books will close four locations along the lakefront (Uptown on Broadway; Diversey& Clark, North & Clybourn, and Hyde Park) as soon as they can get the spaces sublet, and other chain retail is downsizing rapidly. In return for hundreds of millions of dollars in direct assistance and tax incentives, we will have empty spaces, most of which are too large for most of the business that might want space in these locations, while the suburbs will be littered with dozens of dying, half-empty shopping malls and power centers that are of no use to any other type of concern, and will blight every neighborhood they're located in.

A 'rescue' of the failing airlines is now be discussed, even though we already render $14 Billion a year in direct subsidies to the commercial carriers. That the airlines have been failing for years because air travel is intrinsically uneconomical and inefficient for short distances, and the whole industry is predicated on plentiful supplies of extremely cheap fuel, is not discussed. We speak of rendering larger subsidies to Amtrak, but we do not discuss removing the multiple regulatory barriers to the development of private rail carriers and otherwise leveling the playing field between them and thier extensively subsidized auto and airline competition, so that passenger service can be profitable for them. Instead, we think only of tossing more money at another mismanaged, government-owned entity. Likewise, we continue to subsidize other failing industries, as well as lifestyles and patterns of development that we would have evolved away from decades ago had not our hamfisted policy makers had the ability, granted by our taxing authorities, to implement policies whose reach extended down through decades, far beyond the limited vision of any collection of human beings, no matter how brilliant and knowledgeable. The result is continued misinvestment on a gargantuan scale, with borrowed money we will never be able to pay back, in industries and lifeways that have no future.

The economic carnage and physical blight left behind by government assistance, incentives, and other interventions is visible in every municipality in the United States, and in almost every industry. It began with many of the social programs of the New Deal era, that included low-income housing projects that were supposed to be a cure for the teeming slums, and the policy-driven and tax-funded steering of the general population toward auto suburbs and car dependence via FHA loans available only for homes in newly constructed subdivisions, and the construction of the highway system that tore apart fine-grained urban neighborhoods a;d isolated remaining residents from jobs and mobility. It is culminating in the disastrous failure and unprecedented destruction of our financial system, the complete socialization of our economy and the destruction of budding new technologies and business models, while draining the last of our diminishing economic power and depleting resources to keep failed Old Economy business afloat, that would have died a natural death many years before without such intervention.

Yet, we can blithely babble about the failure of something we call the "free market". What free market? We haven't had anything resembling that since the late 19th century, and it is difficult for most people to imagine an economy that somehow functions without "partnerships" between business and the government. We fail to see that the more an industry is subsidized, the more it fails- and almost every industry in this country is subsidized, to the extent that it has become impossible to tell what really supports itself and makes economic sense, and what doesn't. The debt bubble would never have reached the proportions it did without the easy money policies of the Fed in conjunction with massive subsidies for home builders and buyers, and the implicit guarantees of rescue for feckless financial institutions should they (again) encounter problems with the layers of bad debt our policy makers urged them to underwrite. And our domestic auto makers might have remained innovative and competitive had they not been spoiled with the easy profits of defense contracting where they never had to justify their costs, or their friends in Congress and in their local governments, who enabled them in continuing to build obsolete products by favored tax treatment and incentives.

Now that our leaders have publicly admitted that the housing "rescue" is a flop, can we reasonably expect the auto or airline bailouts to succeed? And can we also expect that government policy makers and politicians will do a better job of operating these concerns that their current managment has?

Could we start rolling back all the "rescue" programs, and instead make the emergency provisions we should have made to begin with? Government intervention is warranted only for emergencies, and the appropriate response to the failure of our financial institutions would have been to protect the innocent by protecting all "demand" money in checking, savings, and money market accounts up to any amount, as well as fixed insurance policies and annuities, and then let the tottering institutions fail. We could then spend a portion of the money we have misinvested so far, instead, on extending unemployment and on necessary infrastructure repair and replacement. The idea is to protect the innocent and their money, while providing a minimal safety net for the swelling numbers of unemployed and destitute until they can regain their footing. The idea should not be to socialize the entire economy, and it's time to look at the massive hairball of subsidies and government incentives, going clear back to 1900, that have caused so much misinvestment and pernicious development at the expense of industries and development that would be more appropriate to where and what we are now, and would be flexible enough to adjust to changing conditions as they emerge.

Wall Street: The World's Greatest Welfare Queen

$70 Billion of $700 Billion "Rescue" Funds Being Distributed to Wall Street Executives as Bonuses and Salaries

Can anyone think of a more compelling reason to steeply raise the income and capital gains taxes on high incomes, than the distribution of 10% of the "financial rescue" funds underwritten by our tax dollars, to the top executives of the financial firms whose greed, malfeasance, poor management, and failure to control risk is causing the cascading collapse of our financial system and the financial decimation of almost every non-rich American? These awards are being made while financial firms are shedding middle and lower-level jobs by the tens of thousands, and while the remaining rank-and-file employees are accepting pay freezes and cuts. The funds are definitely not "trickling down".

Does anyone out here believe that the recipients of this incredible largess could be said in any sense to have "earned" these awards? If you make a mistake that costs your firm $100,000, say, will you be given $300,000 of the taxpayer's money, or your company's, for that matter, as a reward for your performance?

By "high income", I don't mean $250K a year, or even $500K a year. I mean $5 million to the stratosphere, for we are talking here about people who commonly receive $10 Million or more in compensation, and sometimes receive hundreds of millions of dollars in return for destroying the value of their companies and our financial system, in the process.

The "rescue" funds are being distributed at the discretion of Paulson, whose first loyalties are to Wall Street, and who has total, unrestricted discretion over the use of the funds. Congress has imposed no guidelines or control on their use, even though this was "suggested", but merely rammed the funding package through with haste that is truly incredible given the stakes involved.

We are being systematically plundered, as well as being set up for complete financial and economic collapse including a treasury default, in order to guarantee lifestyles comparable to those of Saudi Oil Sheiks to the most rapacious and unprincipled passel of crooks, thieves, and con artists ever to manage the finances of a major nation. 90% of our population is being rendered poorer and less secure as a result of the mismanagement of our financial system that has been enabled and subsidized for the past two decades by our authorities, and all hope of a reasonable recovery, and the rebuilding of the economy on a sound, honest foundation, are being destroyed by the ballooning of treasury debt and the wave of hyper-inflation that will surely result. Long-standing businesses are being destroyed, along with many formerly well-off citizens, while the the middle-classes are being driven to near poverty and the poorest among us are losing their last faint hopes of bettering their situations and climbing to the next rung of the ladder. Our cities and towns, and our necessary services, will lose essential funding and "give backs" of the taxes they have sent to Washington D.C., while local taxes whither with dropping incomes and inflating costs, so we can expect less police protection, steeper deterioration of essential water, sewer, and road infrastructure, and higher local tax rates to offset the money we toss into the deepening hole of the federal budget.

What we can now clearly see is that both of our political parties are not only ineffectual at the task of steering our economy, but that both have colluded in bringing the country to the pass we're in now, which is that we are a bankrupt and impoverished country that has squandered its resources and destroyed its ability to make a living by encouraging the destruction of what was once the world's mightiest industrial economy, and fostering the financialization of our economy, with the result that we are dependent upon financial scams and debt creation to make a living, and are now saddled with non-survivable levels of public and private debt

We can also see that our leaders from both political parties have no stake in the well being of either our economy nor in that of the segment of the population that has a net worth of less than $50 Million.

We can see that both political parties are growing increasingly irrelevant, and that neither is fully addressing the concerns and urgent needs of the polity at large, or of most of the citizens who comprise it.

Most of all, we can perceive, or ought to be able to reason by now, that that certain decisions are simply too major and too far-reaching to be entrusted to politicians and policy makers, and that economic policy is one of them. We now know that many major policy decisions that seemed timely and brilliant in the hour they were made had disastrous effects over the years, and often immediately, because they are too large and because their unintended consequences cannot be predicted, and because they cut off the possibility of making the small, local, fine-tuned adjustments to shifting circumstances that enable individuals and entities to adapt to changes in the economic landscape, for these policies cause massive, sudden changes that are too sweeping for successful adjustment.

I'm not optimistic that we will be able to change the course we're set on now anytime soon, and that path seems to be toward greater socialization of our economy in lockstep with an even greater income divide, and with a bias towards guaranteeing lavish unearned rewards to the very wealthiest class of Americans while destroying all incentives and all hope for anyone not born into this privileged order, whose ranks will be this society's owners. In other words, we will have government sponsorship of private ownership by a small oligarchy, whose ranks will be guaranteed an absence of competition or exposure to risks commensurate with their rewards. The rest of us will assume the risks while being permanently blocked from rising from near or total poverty.

Proposed Bailout for Mortgagees-Will Middle Class Welfare Program Collapse Us Financially?

The homewner bailout proposed by Senators Dodd and Clinton, and seconded by Sen. Obama and other pols eager to pander to the middle-class homeowner vote, got an additional boost from PIMPCO founder Bill Gross today, who appeared on CNBC to appeal for a bailout for beleagured home-debtors confronting foreclosure.

Additionally, here in Chicago, Mayor Daley is seeking ways to people who are upside-down on their mortgages stay in homes they obviously couldn't afford to begin with.

The bailout advocates are using emotionally loaded language to sell the public on the idea, usually referring to the poor homeowners who will be rendered "homeless" by foreclosure.

Aside from the dubious morality of creating an entitlement program for people who were greedy, deluded, or careless enough to borrow money they knew or should have known they couldn't repay, there is the even more doubtful quest to rescue the enterprises all the way up the chain of greed, delusion, and dishonesty that made it possible for so many underqualified borrowers to assume so many over-written loans. The links in the chain are the developers who are now seeing their construction loans foreclosed, the lenders who approved loans to people they knew were borrowing way beyond their means to pay, the hedgefunds and bond funds who bought the bundles of loans, the rating agencies such as Moody's and Fitches who assigned AAA rating to paper they knew or should have known was junk, and the quasi-government agencies such as Fannie Mae and Freddie Mac, who stood ready to absorb the crappy loans as fast as the mortgage boiler rooms could generate them.

Many people made massive fortunes from the speculative hysteria of the past five years. It paid for $40 MM mansions with 3 swimming pools and heated 10-car garages, paid for by the $100MM bonuses paid to top hedge fund managers and CEOs like Angelo Mozilo at Countrywide, as well as enabling a few million severely math-challenged consumers to live far beyond their means for a few heady years.

If a bailout is engineered, will people like Mozilo be required to fund it? Seems only fair, given that these guys and a few hundred other head honchos of mortgage providers, banks, debt traders, and fund managers were the chief beneficiaries of financial lunacy of the past few years, and the trillions of dollars of imaginary money that the Fed sent sloshing through the economy to fund it.

However, we know that will not happen. What we know is that this is one more situation where the profits are privatized while the costs are socialized, as the taxpayers are once more required to step in, because of the danger the bursting credit bubble presents to the economy.

The people who will help keep homedebtors whole and bail them out of the situations they created for themselves, and will keep people like Mozilo in their mega-mansions, will be the rest of us who did not borrow over our heads, including homeowners who live within their means and neither bought more house than they could afford nor used their houses as ATM machines to fund their expensive cars and foreign travel and outdoor kitchens. Another group who will help the poor, defenseless "homeowners" stay in their overpriced homes will be renters who sat on the curb and didn't chase the car , but waited patiently until they could either afford to buy on decent terms or until prices adjusted back to their proper level. These people will wait that much longer for a chance at membership in the "Ownership Society", while their taxes are jacked to rescue the feckless, the dishonest, and the delusional.

Worse, our national deficit will balloon to unsupportable levels. Given that the misguided and failing war effort has already brought us to the brink of insolvancy, what will four or five trillion dollars worth of bad mortgages accomplish?

It's a choice between bad and catostraphic. If we let a couple of million more homeowners go to foreclosure, the economic consequences will be bad, face it. 40,000 jobs related to the mortgage industry have been lost so far, with many thousands more in related financial to follow, in addition to those in other industries dependent upon the housing market. Consumers will no longer be able to tap house equity because they will no longer have any. House prices will trend steeply lower. There could be a deep recession while the bad debt works itself out and the housing and financial markets regain traction.

However, a federal bailout could collapse the entire country. As it is, we cannot afford to maintain and replace critical infrastructure, or properly fund Social Security. At this time, there is an estimated gap of $63 Trillion* between projected tax receipts and future expenditures; a recipe for financial collapse with everything that follows it: loss of credibility in world financial markets with attendant inability to attract foreign investment; inability to fund day to day operations of the government necessary to maintain national security, let alone critical infrastructure and services; and the bankrupting of an increasingly impoverished population.

If our legislators and policymakers can't grasp the economic implications of a bailout, they should take the temperature of the electorate. Most people are vehemently opposed to the bailout because of the raw injustice of it, which is something the Democratic candidates Clinton and Obama should think about, since notions of fairness and justice don't seem to weigh with them.

A petition against the bailout,Tax Payers Against a Wall Street and Mortgage Bailout, was generated by a man named Thomas Roach. If you are opposed to this new welfare entitlement, you are invited to sign.

* "Drifting Towards Bankruptcy", by Laurance J. Kotlikoff, The Phladelphia Inquirer, October 22, 2006. (Link would not install.)