Lessons from Merkel in Germany Applied Here at Home: Why Can’t We Be Brave Like That?

4 Nov

by Neil Garfield

“We are paying way too high a price to protect the employment of those who didn’t do their jobs as fund managers for the investors who bought these bogus mortgage bonds.” Neil F. Garfield
The tension was so thick you could cut it with a knife. The Banks were, as usual, dictating the terms of their own bailout with threats that if they go down the whole system would go down. Sound familiar? This premise wasn’t true and Germany’s Merkel and France’s Sarkozy knew it. But most of the economic and foreign ministers in the EU were scared that it COULD be true. But the only ones in the room who really knew for sure were the Bankers themselves, some of whom had spread the lie so often in so many ways they were coming to believe it themselves.
The implicit threat was that if Europe didn’t capitulate, surrendering their list bit of dignity to the Banks, the system would fall and that the bankers as people would be just fine because they were rich bond words. I liken it to the Cuban Missile Crisis. Somebody had to blink. Merkel showed the guts we need from a national leader. She ordered the printing of Germany’s currency back into circulation and the printing presses went to work. She told the Bankers they either take a 50% haircut on this mess the bankers created or simply take the consequences of default of Greece, Spain, Italy et al.
It was obvious she meant it. And Sarkozy agreed. We’ll take our chances with the system, rather than surrender control to the Bankers. The result was easily predictable for those of us who are students of this remarkable moment in history. The Banks caved. 50% write-down is what they are accepting which means that they are willing to accept the responsibility of paying for 50% of the damage they created with bonds, pools, derivatives, credit default swaps etc. They caved because their threat did not have a thread of truth to it. If the big bankers go down the smaller bankers go up. That’s the way it is and always will be.
We have plenty of objective, quantifiable data to measure the damage here in America. The nominal amount of debt is beyond imagination because it literally exceeds all the money in the world by a factor of at least 2.5. Amount of nominal debt: $125 trillion, minimum. Amount of money in the world including all currencies: $50 trillion. Bankers here should get the same treatment that the Bankers in Europe received. You created this and you will pay for at least 50% of the damage. As we will see later, I actually have a plan to make that happen out in the trenches of the economic wars in the marketplace. More on that soon, very soon.
The trouble with pursuing any solution is that the business of America is now accounted for by measuring “financial services.” And if you really look at the corporate culture and behavior of these companies, their business is not any service at all. Their business is making executive bonuses and compensation as high as the sky will allow. I’m not talking about the whole income and wealth inequality debate here, I’m talking day to day business and the reason why we are not even close to a solution that will put America back on track, back in the game — never mind being the number one player.
Here is the obstacle to resolution: nobody is telling the truth because they are preserving their next bonus and their next raise. As long as the pension fund managers don’t report to their beneficiaries and the Board that they lost 50% of their assets, they keep their jobs, their bonuses and their compensation packages.
That is why Wall Street has created intermediaries to grab houses on which they made no loan — they know that in order for the pension fund to stop them, the pension fund manager would need to admit that there is a loss that was previously unreported. So even though the loss is getting larger and larger by allowing the servicing companies and banks to grab millions of free homes, the fund manager gets to keep one more bonus, one more year of compensation. “screw the pensioners…They’re going to die anyway.” (I actually heard that from someone who will go unnamed, for now).
This column has been an advocate of principal correction because, whether it’s a mortgage, credit card, auto loan or student loan debt, the amount was and remains too high, piled on high with absurd fees and accrued interest that once upon a time (30 years ago) was deemed criminal — you know, like you could be jailed as a loan shark for charging those rates. That was back in the days when we listened to economists instead of bankers as to what was good for the country. By listening to bankers we replaced real wages with debt and now there is simply no place left to insert debt, savings are near zero, consumer confidence is near zero, and joblessness is at an all-time high. Just what do you think is going to happen this holiday season?
Defaults are rising and will continue to rise because they have no place else to go except up. The tooth fairy won’t fix this one. Obama must develop the same set of cayungas that it took a woman to demonstrate — Merkel in Germany. He’s got to be willing to walk from the table and insist on extracting a very high price from bankers who sucked a very high price out of our society for the last 35 years. Specifically, the Market has set the bar, whether we agree with the level or not, at 50%. Requiring the Banks, investors (pension funds etc.) to tell the truth about the debt they are carrying on their books as assets, and requiring them to agree to reality — it isn’t worth more than half of the nominal value and in fact it probably isn’t worth more than 15% of nominal value. Anything the banks and investors get over 15% is gravy.
So correcting the loan principal on mortgages to less than 50% is merely reflecting reality. The value used at closing by the lender, in fact, certified by the lender, was a lie and the borrower depended upon it as did the investor whose fund manager doesn’t want to admit he never looked under the hood of the vehicle. Correcting the rest of consumer loans would similarly bring the debt in line with the value of the debt. We are paying way too high a price to protect the employment of those who didn’t do their jobs as fund managers for the investors who bought these bogus mortgage bonds.

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One Response to “Lessons from Merkel in Germany Applied Here at Home: Why Can’t We Be Brave Like That?”

  1. Sondra Creed November 4, 2011 at 10:52 am #

    Timothy you are so right! Another Chase just opened up around the corner from my house, why do we need so many branches on every corner within a six mile distance? Chase is not modifying, i am on round
    8 of the loan modification resubmit/stall tactics.of the bank on my predatory loan. I keep getting bounced from one buyer to the next. All this effort just to keep my home when I could be focused on my career
    and making money. Pulling people out of their homes based on these predatory loans is ridiculous. Not giving us solutions that work is ridiculous, defeating and degrading to the moral of the American Dream. Stand up America and fight for what we paid for, work for and
    let us go to work without plastering our doors with auction notices.

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