Housing Doom

Japanese mortgages are recourse loans, meaning the borrower is still liable even after foreclosure. Depending on the state, most banks in America offer nonrecourse loans, which are secured by collateral, usually the property itself. Once they foreclose, the borrower’s debts are gone. If you default on a recourse loan, you’re messed up three times: you lose your home, you lose all the money you sunk into it, and you still have debt. Wait, make that four times — your credit rating is garbage.

Wow!  Sounds like Japan doesn’t have to worry about The Danish Model. Doom once again thanks the mysterious Jesse for allowing us humble mortals in the blogosphere to freely re-post their stuff under Creative Commons.

The Japanese Stagnation

by Jesse

This is interesting, and probably an eye-opener for most Western readers.

Most Japanese mortgages are ‘recourse’ loans meaning that the borrower still owes the full amount of the loan even in the event of foreclosure. One of the reasons for this is that so many Japanese residential buildings are not intended to outlast the 35 year mortgage and depreciate from the day they are bought.

The Japanese government promoted officially backed mortgage programs to keep the economy going, cutting down payments to zero from the traditional 20 percent. This lured in buyers who really could not afford the houses, and are often the first to have their pay cut in an economic downturn.

Japan uses a semi-annual bonus system as part of its pay structure for employees, the bonus portion of which is more readily sacrificed for the company good.

Please consider these things in the context of the governance of Japan which as we have said is semi-feudal, ruled by a few corporations and the wealthy elite in partnership with essentially a one party government.

This will go a long way in helping to understand the "Japanese disease" of economic stagnation. You start by crippling the middle class through debt indebtedness to a corporate elite. [what follows is a re-post of a Japan Times article supporting the above with Jesse's emphasis -- jm]

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Reggie’s putting his cards on the table [1] with respect to a powerful indictment of the Fed Stress Tests. I thought this was important enough today to pass it up the line for Implode-O-Meter to consider, but since then it’s gotten thumbs-up from both Doomer V and one of SeekingAlpha’s top commenters, so it probably should go above-the-fold here too.

UPDATE: today (Thursday) the co-CEO of SAP, the world’s leading vendor of business software, simply makes the pretense that the tests’ validity is an accomplished fact.[2]

PARIS, May 14 - The U.S. government’s recent bank stress tests were all about clarity. With hard data and clear facts, they shone a bright light on the shadowy uncertainties of complex financial transactions.

Truly an astonishing performance: Debate? What debate?

…………………..

… meanwhile, The Economist can barely contain its skepticism.[3]

In effect the stress tests asked American banks if they had more capital than losses. A better question is whether they have enough capital to stand on their own without a state guarantee. Any hopes that Europe might do better were dashed when its regulators promised to conduct similar tests, to keep the results secret and to avoid singling out individual lenders. That points to a Japanese-style future for Western banks, in which a thinly capitalised system staggers along, insisting on its rude health, while the state follows holding crutches an inch beneath its armpits. If that is the answer, then the stress tests were asking the wrong question.

SAP Audit Committee please take note.

The point is not his shocked disbelief in the tests, but his assertion that he’s got a document with sources and methodology to back up his claims. Simply put, if he’s bluffing or BS’ing there’s enough eyeballs out on this story his claim shouldn’t survive more than a couple of hours. This story is clearly falsifiable so it deserves lusty attack. Here’s the payload, Doomers, please go to it

The full report, complete with sources and methodology is available here, free of charge. I simply ask that you forward it to your local congressman/woman and/or favorite media personality. The Truth shall set you free (or get you locked up, depending upon which side of the Truth you are on): BoomBustBlog.com’s Realistic Recast of SCAP 2009-05-12 14:52:09

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…

"Thank you for contacting us regarding "share entitlements". When you purchase stock, they are held in ¿book-entry¿ (electronic) form but in"Street-Name". This provides secure and reliable methods of ownership,without the risks and worries that can be associated with a paper certificate.

Due to a change implemented by the Depository Trust Company (DTC) and approved by the Securities and Exchange Commission (SEC), a physical certificate is "no longer" available through TD AMERITRADE. Your ownership of a security through TD AMERITRADE is maintained electronically in street name at the Depository Trust Company (DTC). from the comment thread of [1]

The above would seem to be right out of the seal the cockpits, fire all your pilots and outsource to a bunch of Predator drone operators school of corporate safety and soundness.  That was a commenter, but the post itself [1] was even more hair-raising.  The assertion there was of a widespread amount of "failure to deliver" in the "repo" market in T-bills themselves in the wake of all the chaos last September.  The good new is, what with all the bailouts since September 18th, it can’t possibly be that bad now.

However … last Sunday the WSJ sent up a flair that new rules coming into effect tomorrow will cause issuers of treasuries who fail to deliver to be charged a hefty fee, and that the immediate impact will be such as to likely cause Treasury Debt yields to go negative.[2]  Today Bloomberg is warning this could drive away short sellers and impare market liquidity.[3]

OK, so if I’m reading the below quoted bit from this 2-week-old blog post in The Atlantic [4] correctly, treasuries are sort of the last bastion of the Commercial Paper model for doing corporate short term finance and a host of other related things.  We’re talking here about the pressure of the transmission fluid, as it were.  Do we really want to mess around with the liquidity of this market starting May Day?

UPDATE: belated thanks to both twist and the Implode-O-Gang for critical digs on this story.  And further thanks to Aaron’s people for their pickup of this post, although of course they had to quote the most egregious typo in the above ("hefty fee" not "heft fee")

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Meanwhile, I’m sitting an hour’s drive from about half of Canada’s present Swine Flu cases (in Windsor), and then this afternoon, without warning all hell broke loose (this is the CBC story with more video) just a 10 minute drive away..

"… anyone got some marshmallows?" It’s something of a joke in Canada that Maritimers tend to be a wee bit laid back. It’s not a joke.

Well, it’s been almost 9 years since Love Bug I came zorching out of the Philippines and exactly half a year since Love Bug II, Porche’s stealth short-squeeze against VW, caused chaos among the hedges and other speculators.  Do we really want tomorrow to look like another badly dubbed Disney B-movie?

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… "Wow, that’s even more disturbing" … - about 9:50AM

Today’s third 1/2 hour of The Current (about 9:32 to 9:55 AM across Canada’s time zones) is a must-hear.  Streaming audio as it happens by region is available here. This is CBC’s promo for the segment on their site.

And … Earlier this month, banking giant Goldman Sachs shocked Wall Street by posting a 1.8 Billion dollar profit in its first quarter earnings and announcing that it wants to pay off half of the 10-Billion-dollar loan it got from the U.S. Government last fall. We’ll talk to Pulitzer-Prize winning investigative reporter, David Cay Johnston, about the company’s long history and how Goldman Sachs has managed to survive and thrive at almost every turn, shaping decades of American economic policy in the process.

I knew that this segment was going to be special, because they put the promo for it on about a week ago, and it never came up.  Well, the lawyers must have finished their work because it’s being broadcast across the country now and … Holy $$@#%!

It’s basically an interview with David Cay Johnson.  Let’s just say it didn’t pull any punches.  CBC usually has podcasts available shortly after the program.  August Dvorak so help me, this thing has got to go up where Google can see it.

UPDATE: Hope you caught the show on air, ’cause looks like that segment’s not going to podcast. Pity

………………………………

D’oh!

Another part of The Current’s web site now has the Whole Show Blow-by-Blow: The Current for April 27, 2009, including all three 1/2 hours as listenable segments.  The first half hour covers swine flu in Nova Scotia, which might be of interest to Doomers who read my brief weekend post.  However, the real must-hear segment is the third 1/2 hour.  Here’s their intro.  Go to the April 27th site to get a version with links and the listenable audio.

Part 3: Goldman Sachs

We started this segment with a clip from The Daily Show’s Jon Stewart riffing on Goldman Sachs right after the banking giant shocked analysts with a first quarter profit of 1.8 Billion dollars.

And to be fair, the company also announced that it wants to pay off half of what Jon Stewart correctly identified as a 10-Billion dollar loan from the U.S. Government. And Jon Stewart is right about another thing too. The relationship between Goldman Sachs and the U.S. Federal Government is tight and it pretty much has been for as long as the company has been around.

According to David Cay Johnston, that’s allowed Goldman Sachs to turn itself into one of the most powerful and influential companies in the country …able to bend and shape the economic policies of one U.S. Administration after another.

David Cay Johnston is a Pulitzer-Prize-winning investigative reporter who teaches at Syracuse University’s law school. He’s also the author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill. He was in Rochester, New York.

………………….

LATER: Doom’s transcript is now available

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Mike made the point [13] that most people in developing countries are more exploited and miserable than the typical American, mortgage crisis or not. He has a point. I know just what it means to be able to buy bananas for 69 cents/lb at the local supermarket. It’s just that this level of exploitation seems to be slowly creeping into the middle class of the heartland. There is a famous story about the "boiling frog". The allegorical moral [11] is that if you put a frog into hot water it will hop out, but if you heat the water slowly it will never take alarm and you can boil it. For years it’s been clear (at least to me) that a similar process was at work with the steadily rising levels of debt in the U.S. The inexorable pressure on families is mostly happening quietly and in private, one payment, one notice at a time. Hopefully Doom can help people see their own stories as part of a larger pattern.

FIRST POSTED WEDNESDAY SEPTEMBER 13, 2006

During the course of a Wednesday morning radio interview [1] with Twist, host Charles Goyette [2] made an interesting remark. "It’s the buyer’s fault, after all," he said, implying that home buyers, whether investors or homeowners, are grownups and responsible for the obligations they enter into. Regular reader "Mike" made a similar point [3] earlier when he took me to task for using the "S" word (slavery) [4] late last month to describe the likely fate of many middle class borrowers should they actually have to pay the principal and interest on the loans they are saddled with now that the bubble has burst. Although my analysis is still very sketchy, I feel the situation for Joe Sixpack is sufficiently serious that the word slavery is not out of the question. Be warned that what follows is going to read more like a sermon than an argument. That the distressed borrowers and their families must not be called to account beyond a certain point, laying aside the practicalities, is simply an aspect of certain "bleeding heart" [5] tendencies that I will also try to justify.

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… Iceland is confronted by more powerful nations, headed by the United States and Britain. They are unleashing their propagandists and mobilizing the IMF and World Bank to demand that Iceland not defend itself by wiping out its bad debts. Yet these creditor nations so far have taken no responsibility for the current credit mess. And indeed, the United States and Britain are net debtors on balance. But when it comes to their stance vis-à-vis Iceland, they are demanding that it impoverish its citizens by paying debts in ways that these nations themselves would never follow. … [1]

The Book of Noah (the bits after the Heritage USA thrill ride part at the beginning) provided some timely advice against invading Iraq that nobody really paid attention to. It’s urgent that we all now note that THE BIG GUY HIMSELF came down specifically to register HIS OPINION about stuff like the above:

Then Peter came up and said to him, "Lord, how often shall my brother sin against me, and I forgive him? As many as seven times?"
Jesus said to him, "I do not say to you seven times, but seventy times seven.
"Therefore the kingdom of heaven may be compared to a king who wished to settle accounts with his servants.
When he began the reckoning, one was brought to him who owed him ten thousand talents;
and as he could not pay, his lord ordered him to be sold, with his wife and children and all that he had, and payment to be made.
So the servant fell on his knees, imploring him, ‘Lord, have patience with me, and I will pay you everything.’
And out of pity for him the lord of that servant released him and forgave him the debt.
But that same servant, as he went out, came upon one of his fellow servants who owed him a hundred denarii; and seizing him by the throat he said, ‘Pay what you owe.’
So his fellow servant fell down and besought him, ‘Have patience with me, and I will pay you.’
He refused and went and put him in prison till he should pay the debt.
When his fellow servants saw what had taken place, they were greatly distressed, and they went and reported to their lord all that had taken place.
Then his lord summoned him and said to him, ‘You wicked servant! I forgave you all that debt because you besought me;
and should not you have had mercy on your fellow servant, as I had mercy on you?’
And in anger his lord delivered him to the jailers, till he should pay all his debt. So also my heavenly Father will do to every one of you, if you do not forgive your brother from your heart." - Matthew 18:21-35

Hat to to twist for pointing out the importance of the CounterCurrents article.  Professor Hudson has written some really profound stuff, and Doomers should seriously consider reading his whole article and other resources at his personal site.

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Nowadays he supplies oysters to some of the best restaurants in Manhattan. But in his previous incarnation, Mr Osinski played a crucial, if inadvertent, role in stirring up the financial whirlwind that has battered the world. As the top computer programmer for the titans of Wall Street, he wrote the complex software that bundled home mortgages into bonds, making possible the subprime loans collapse that sparked the global meltdown. [1]

It’s official, truth really is stranger than fiction.  And meanwhile the WSJ is confirming that this is indeed what destroyed the planet.[2]

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Investors were told last month their money was spent and they won’t get a penny back. A single mother in suburban Los Angeles lost $200,000 and won’t be able to send her sons to private universities. A Los Angeles-area businessman lost a deposit of more than $1 million on four Trump units, including two penthouses.

The project’s collapse comes at a delicate time for Trump, whose casino company, Trump Entertainment Resorts Inc., filed for bankruptcy protection last month. He also is embroiled in a lawsuit to avoid paying debt on the struggling Trump International Hotel & Tower in Chicago. [1]

Memo to all you aynish neocons and neoliberals scuttling around inside the Beltway:

In case you didn’t notice, what you all signed up for with Hank & Ben on the evening of September 18, 2008 was a Command Economy.  Wake up and smell the Socialism.  The longer you pretend the situation has anything to do with free enterprise, the longer you’re going to continue flushing taxpayers’ money into the hands of economic exploiters.

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In the late nineties an approach was made to the British Ministry of Defence for salvage rights on the Operation Deadlight U-boats by a firm who planned to raise up to a hundred of them. Because the wrecks were constructed in the pre-atomic age, they contain metals which are not radioactively tainted and which are therefore valuable for certain research purposes. … [1]

Truly a hot button issue for our times

Hat tip to Eric M. for this one.  We were just digging into our Greek Combos at Cousin’s and going over how subprime mortgages had messed up just about every corner of modern structured finance.  My son then told me about something I didn’t know.  Hot recycled metal from decommissioned nuclear power plants, among other places, is threatening to radioactively contaminate the entire world’s steel industry.  The way he explained it to me, it’s just eerie how this unfolding story of risk and greed parallels the familiar dynamics of subprime.  Truly, did we learn nothing from Tunagate?  Even if the fish is pure, if all the cans are now "tainted," and there are prospects that radioactivity levels could rise, we could be in big trouble.

Now the credit crunch we all know and love will likely produce 5 or 6 years of total world financial meltdown, but the the potential fallout from a radioactive steel crisis would be the Real McCoy.  We might ask, how long before CNBC’s Squawk Box starts having discussions a bit like this satire?

Are Violent Video Games Adequately Preparing Children For The Apocalypse?

Once you start looking it’s farcically easy to find signs of the familiar soothing sounds and private panic amongst the authorities.  Last month a major German news magazine reported that inspectors were detecting hot steel in everything from bulk stainless trans-shipments destined for Russia to imported French elevator buttons.[2] (Yup, it really is a hot button issue.)  A week ago that story elicited a response [3] in an Indian business journal that recalled (*ahem*) a history of even less careful investigation of scrap inputs into the country’s blast furnaces.  (Doesn’t this sound just like the buyer’s regret experienced by Investment Banks, etc., after they shoveled tons of the output of subprime originators like Mortgage Lenders Network into MBS?)  Last Sunday a steel industry newsletter highlighted the urgent need for radioactivity detection capabilities relative to inspecting inputs into Indian steel.[4] Another German source reported the discovery of 5 tons of contaminated steel wool,[5] but played down the public health risk.

Years ago, just when the housing bubble was starting to gain traction, the mildly alternative media was starting to sound the alarm.[6] Oh well, I suppose it sounded like a good idea at the time.  Whether or not that particular bit of insanity got put into operation, eastern TN isn’t the only site in the world with lots of perfectly usable, if glowing, scrap metal seeking for a less than careful buyer.  Who wouldn’t risk destroying someone else’s great-grandchildren’s health to make a quick buck? — if there were enough bucks involved.  Of course there’s never just one cockroach.  In fact, today is the first anniversary of the discovery in Italy of 30 tons of hot Chinese product,[7] while yesterday a major Indian paper alluded to the problem with decommissioned nuclear reactors,[8] albeit after the usual nod to medical isotopes.   In many ways, this unfolding issue could well end up feeling like World War 3 in slow motion.

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Seems some folk think that FTBs should save for their own down payments.

One the other hand, some don’t.  The Implode-O-Gang sends this [1] …

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