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DINKS to NINJAS

New -- 15 March 2009

Mortgage Lenders the world over have always had a special affection for young married couples who do not have any children. These classic... albeit gullible, inexperienced, and relatively naive potential borrowers have been inevitably referred to as "DINKS". The terms is actually an acronym for: "Double Income, No KidS". Think of it as the mortgage lenders short hand for two people linked financially by law (allowing mortgage holders to double their chances of repayment), as well as those situations where two people are both working diligently to pay off the debts incurred by buying their new or used home.

Kids, meanwhile, are in all respects some of the most prolific consumers on the planet... and thus represent competition with the mortgage bankers for the available family fortunes. Kids cost a lot of money... money that from the mortgage lenders' viewpoint is no longer available to the banksters. On the contrary, DINKS constitute a family's total committment to paying off the interest (and occasionally the principle) of the mortgage bankers' loans. Thus they are highly sought after.

But alas, there has always been a severely limited number of DINKS available to the mortgage bankers. Societal and instinctual pressures to transform DINKS into consuming families with kids are working in direct opposition to the wishes of bankers and mortgage holders. It's a serious concern, one that has forced money lenders the world over to turn to other potential borrowers, whose ability to repay loans are unfortunately somewhat less than the ability of DINKS.

However... if the truth be known, mortgage brokers (as opposed to lenders) make most of their quick money by originating loans -- and not as might seen obvious, actually collecting the interest and principle on the loan. Mortgage brokers (aka banksters) have in fact very little interest in the messy details of actually having a loan repaid... collecting monthly payments, threatening delinquents or late payers, attempting to add fees for failure to use commemorative stamps on their submissions, and so forth and so on. Oh, sure, interest over the life of a loan can easily be enormously lucrative. And it is true that a lot of lenders are eage to make loans for this reason.

However... if one is looking for the quick buck, the loan origination fees are where the action is. All that has to be done by the banksters, for example, is to sell a loan to a borrower (using ostensibly essential loan making criteria), collect the clearly excessive loan origination fees, bundle the loans acquired thereby into large blocks (where the details of individual loans... not to mention the ability or lack of ability to repay the loans being only marginally addressed), and thereby shift the burden of collecting on the loan to huge corporations (the "lenders of last resort") -- the latter who will eventually turn to the government... and the taxpayers... to bail them out when all of the bundled bad loans go south.

The keystone to this scheme is the bundling of loans, the goods ones, the ones made in undue haste, and the clearly fraudulent ones. "The vast majority of the toxic securities were bought and sold in private transactions beyond the reach of regulators. And the securities themselves were dizzyingly complex." [1] Note: "beyond the reach of regulators." The "dizzyingly complex" bit is to make sure that even if some regulator were to investigate, he or she would be hopelessly lost.

THEN... hundreds or thousands of mortgages were "often combined with other mortgage-backed bonds and other debt into super-sized securities called collateralized debt obligtations. Financial institutions bought these toxin-laced CDOs for their own accounts or for clients, wiht the ultimate owners dissappearing behind a web of bank-secrecy laws." These securities are now worth between 5 and 32 cents on the dollar! [1]

The problem in many respects: "too much money was chasing too fee borrowers, leading to a decline in lending standards. In 2001 [on Bush's watch], in response to the dot-com meltdown, the Federal Reserve flooded the financial system with money, cutting short term interest rates to 1 percent and keeping them there for more than a year. Banks borrowed cheaply from the Fed and lent the money at a higher rate to millions of home buyers and other consumers." [1] Not only were the DINKS in horrfically short supply, but the Federal Reserve, a private corporation, was strongly encouraging a transformative redistribution of wealth from the consumers/taxpayers to the mortgage bankers, brokers, and lenders. The end result was as Nouriel Roubini noted: a "death spiral" -- one in which there is as yet no end in sight.

But you lest you be concerned about any possible distress on the part of the brokers, lenders, and/or the recipients of federal largesse, note that neither the lenders, nor the mortgage brokers (the loan originators) are in way damaged financially. In fact, with the collapse of all the bad loans, the plunge in home values, the initiation of a Great Recession... the interest rates can also fall. The latter in particular will encourage all the borrowers to refinance... and in the process pay new loan origination fees! Talk about a deal! The mortgage banksters have just failed utterly in their jobs, but are then rewarded with a massive amount of new business. Only in...I was about to say, "America". But maybe... the world? Meanwhile, the bums at such firms as AIG get 60 million in 2008 year end bonuses, courtesy of a massive infusion of capital from the federal government.

For the average mortgage bankster, the key to their continual enrichment is that DINKS do not in general contribute to this scenario... unless of course, upon the first night of moving into their new home they are so delighted with their new digs, that they hit the sack and, as luck would have it, the woman conceives (and thereby begins the process of changing their designation from DINKS to... ordinary people who probably have now over-extended themselves). Very importantly, DINKS have gone from being the cream of the crop to being pariahs of a sort. This is because DINKS are far less likely to default on their loans, and thus do not contribute to the mortgage bankers filling their coffers with as many bad loans as possible... the kind that contribute to the borrowing/bust cycle. The new family, on the other hand, can probably be counted on to eventually enrich the banksters.

But if the DINKS are in too short a supply, or can't be counted on in the long run, then what are the poor distraught banksters to do? Clearly, a new breed of borrower has to be found... one that quite frankly can directly contribute to the borrowing/bust cycle, and if at all possible constitutes a huge population of potential debtors. The ultimate borrower in this class is a whole new breed of borrower, and has been designated as "NINJAS". This affectionate labeling denotes "No Income, No Jobs and/or AssetS". Yes, indeed, these borrowers can truly be counted on to contribute to the mass of bad paper... as well as the perpetuation of the cycle.

Of course, NINJAS in times past might not even have applied for a loan. Somewhere in their thinking they might have been assuming (correctly, as it turns out) that they wouldn't have the wherewithal to actually pay off a loan. And of course, there is the messy details of years past when not paying one's debts caused a fair amount of trouble. The apparent consistent increase in home values might even have made taking the chance a calculated risk.

But the banksters need these people! Truly, they would not ordinarily qualify for a loan, and thus would not bother to apply... unless, of course, the word got out that:

1) one does not need a downpayment (and thus demonstrating the possibility that the borrowers might have the ability to occasionally put aside money for rainy days),

2) one does not need to pay anything against the principle (i.e., interest only loans) (i.e., such that debt survives in perpetuity, constantly enriching the mortgage holders ad infinitum),

3) one can have an initially very low interest rate (the "teaser") that will result in a minimal monthly mortgage payment (but which can later be dramatically increased so as to ensure the inability of the borrower to service their debts... and thus provide for foreclosure), and

4) one can even have a negative amortization (i.e. less than the monthly interest).

But then.... after three to five years of managing to pay, the borrower is suddenly hit with an increase in interest rate... as per the Adjustable Rate Mortgage (ARM) that had been foisted upon him in good times. These ARMS... i.e., yes they do in the end cost an arm and a leg... can then ensure the final stage of the borrowing/bust cycle... followed by new loans and new loan origination fees.

Wall Street would argue that "there was no chance the bonds could go bad." [1] But then Wall Street has always been extremly adept at... as they say, putting "lipstick on a pig." The small matter that Wall Street overlooked (intentionally or incompetently) was "the mathematical models the firms used to predict the behavior of the housing market." In effect, the very idea that the NINJAS might be able to sell their homes for a profit, and thereby not only avoid default, but actually make a few bucks in the process... was well a bad assumption. For if the truth be known, the so-called mathematical models failed to ask the critical question: To whom exactly does one sell the home? And if the prices of homes fall precipitously?

Part of the Banksters' con, of course, is the idea that homes appreciate in value over the years. The fact the Internal Revenue Service views all such real estate as depreciating... and allowing tax advantages for the owner of the property to account for the inevitable loss in value of the building... was somehow ignored. And why was there this astounding assumption derived that a home or building would somehow avoid the ravages to time, weather, and door-to-door salesmen and actually increase in value?

Inasmuch as the Federal Reserve was so intent upon funding the mortgage banker feeding frenzy, one might ask them. For as it turns out, homes do in fact depreciate and lose value (barring substantial inputs of capital to rennovate or expand the home). Things wear out over time. It all depreciates. So why did we and apparently the MBAs and economic authorities assume appreciation?

One excuse might be because of demographics. Expanding populations continually need more space and homes in which to live. BUT! When populations are no longer expanding and the supply of homes falls below the demand for homes... guess what? The homes all depreciate!

The nature of the foreseeable future, even The Next Hundred Years or so is that homes will no longer appreciate (except in preferred locations), and thus the cost of a home will once again become real. All those rentals purchased for the purpose of hefty tax deductions will result in even greater tax deductions... not to mention the possibility of allowing such properties to simply join the borrowing/bust cycle of the mortgage banksters. There's going to be a LOT of housing on the market for years, ensuring that the supply will not soon reach the lower echelons of demand. And thus prices... will stay in the doldrums.

Sigh... This sure has the look of that particular brand of capitalism called "banksters social welfare".

The truly sad aspect is that this giant financial meltdown may be far more serious than the unmitigated greed of banksters and the like would have ever envisioned. For example, "the International Monetary Fund estimates that investors worldwide are sitting on $2.2 trillion in toxic debt. But other estimates are far higher, including one that leaked from a recent meeting of European finance ministers. The estimate -- $16.3 trillion -- left the assembled ministers 'ashen-faced', according to one participant. That's because the figure is more than the annual economic output of the European Union or the U. S. -- raising the fear that the debt could overwhelm not just banks but the governments trying to bail them out." [1]

Not much else to say... but then again... maybe it really is time for a Jubilee Year of the forgiveness of all debts! Why not?

_____________________

[1] "The 'toxic debt' tsunami", The Week, March 20, 2009, page 13.

 

Jubilee Year

The Decree         US Bankruptcy         Justice, Order, and Law

Forward to:

Executive Orders         Jupiter-Saturn Cycles         Leadership

               

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