Your statement is correct. However the people who will suffer the most will be us, not the corporations or the officers charged with running these corporations. A new King and his “corporate cohorts” in colonial crime have been enabled, and a failure to comply with the rule of law is a threat to every American. These bastards are economic terrorist, where you bleed out, slowly, then die………….

The credit thing works only when real estate values are ALWAYS increasing.

It’s a ponzi scheme and when they run out of suckers it collapses.

We’re running out of suckers even the ones created by the bankers with liar loans and all.

(deep in EPU but I hope you read)

I’ve been a close reader of Calculated Risk for two and a half years, but I have to say that this is the best post I’ve seen anywhere embedding this in the macro context. Kudos.

I’ve one minor quibble, or major question depending on how you look at it:

That’s a large topic, but at its base it’s simple enough. If you have a house you bought for 1 million, and no one will buy it for more than $500,000 and you borrowed $1,100,000 against it, a combination of you and the bank are eating a loss of $600,000. That’s money that effectively just disappears. Poof, it’s gone.

But it’s not gone, right? The guy you paid for the house has $500,000. Manufacturers of flatscreen TVs have the other $100,000.

Where I think money truly can go poof (though I’m still not sure) is when the bank packages it into tranches and then people offer derivatives / puts / calls on those securities. Those are simply bets, and that’s where money really can disappear. On average over many economic paths, it all evens out (according to the models), but in any one realized path, someone is going to owe more than they pledged.

“I hope we shall… crush in its birth the aristocracy of our
moneyed corporations, which dare already to challenge our
government to a trial of strength and bid defiance to the laws of
our country.” –Thomas Jefferson to George Logan, 1816.

Jefferson’s fears are realized today in so many ways. A steady dose of Jefferson quotes from the MSM oppossed to “junk news” fed Americans everyday, might have some good results. The truth is the American Government and corporations have merged into one. “Corporgovernment.”

“…AND WHEN IN THE COURSE OF EVENTS ONE SEES, THAT IN ORDER TO PROTECT OUR LIBIERTIES, THE ACTIONS REQUIRED ARE SELF-EVIDENT AND CLEAR………”

Jefferson Quote:
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people.

Better yet, have the bank take out insurance on his loans, and he can pass the cost on to the customer as part of the fee he charges and still earn a fair profit.

that is the way it works, but the bank is the insurer with the house as collateral

and that’s why regulation is important because if the bank doesn’t look out for it’s own good, it will be paying out on that insurance with houses worth less then they are coverning for themselves

Maybe the banks should charge a reasonable fee to create the money they can create only by those borrowing it, instead of interest. Anyone taking out a loan with them should be required to buy insurance for the loan, and the insurer would make sure that the person was healthy enough financially and that the asset was reasonably priced before approving the loan. Better yet, have the bank take out insurance on his loans, and he can pass the cost on to the customer as part of the fee he charges and still earn a fair profit.

I mean, if people are told they must buy Health Insurance for the day when one of their parts defaults, why not apply the same rule to banks?.

Silly me, they already have insurance, it’s Uncle Sam = us. Forget FDIC, thats a sham to make you think your deposits are safe. And then there are companies like Freddie Mac who guarantee the loans, for a fee. But wait, there would be no way a Federally Sponsored Enterprise like Freddie Mac would get caught guaranteeing sub-prime loans unless they charged enough to cover the risk. Right? Wrong. Thats like insuring an Aids patient at the same rate as a healthy 30 year old. But thats what they did. Guess who is going to pay?

And by the way, did you know the Fed is loaning money to the institutions who created the mess? What are they accepting as assets? The Mortgage Based Securities that are not worth anything? Yep. You know we are going to end up with that on top of Freddie Macs bailout.

But the Arabs, Chinese and Singaporeans are pretty smart, When Citigroup, Merill Lynch, Morgan Stanley went to them for help, they asked for stock, or 10% interest. Not our government though.

Citigroup actually went out and bought 7 companies with 68 billion in debt before the Fed announced they would accept the debt as collateral for new loans. Maybe they had a clue what was coming? You think?

The Investment companies are struggling so much, they still managed to give out bonuses to their executives that increased 14% over last year, about 30 billion in total. Poor guys, they need our help to pay the bonuses to the Execs and make sure the share holders get their dividends.

The only thing that would ice the cake is if I were to find out that many of the sub-prime borrowers were illegals? FUBAR. Consider the caked well iced. Good night.

Our monetary system well described here

http://www.geocities.com/rebor…..ndrake.htm