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A Bloomberg headline today read “Americans Tap $8.3 Billion in Home Equity, Least in a Decade”. This is indeed a very news-worthy figure. Sadly, you won't learn anything about this issue from reading Bloomberg's ridiculous “spin” of this news.

At the peak of the U.S. housing-bubble, Americans were initiating more than $800 billion/year of such loans. They are now on a pace to take-out loans amounting to less than 5% of that gargantuan figure...and yet this same, propaganda-machine talks about a “recovery” in the housing market.

“It'll put consumers on firmer ground going forward. It'll give them more confidence,” quotes Bloomberg, from an “economist” named Michael Bratus. Note the use of contractions to make his statement sound like a “cheer”. The only thing he forgot to add was “Rah! Rah! Rah!”

If only Americans were getting on “firmer ground”, and thus had any reason to be more “confident”. Here's what is happening in the real world. After going on the most insane borrowing-binge in the history of our species, based upon all the “home equity” which Americans thought they had, that “equity” has all evaporated – but the trillions in debt remain.

The result: Americans hold less “equity” in their homes than at any time in history: not during the Great Depression, nor at any other time. Indeed, for the first time in history U.S. banks hold more equity in U.S. residential real estate than American “homeowners” themselves. U.S. “home equity” loans have collapsed not because Americans are “repairing their balance sheets” (as the Bloomberg propaganda suggests).

Instead, U.S. homeowners (except for the small minority with full-ownership of their homes) are leveraged-to-the-hilt with debt – and can't afford to borrow one more penny. Secondly, the banks won't lend these over-leveraged consumers any more money. And third, there is no “equity” to borrow against. You can call this process “repairing balance sheets” - as long as you include the observation that it will take a full generation to “repair” the damage of the Wall Street-induced credit-stampede (for those homeowners who survive the process).

Then Bloomberg gets plain silly. “This a rate-and-refinance boom as opposed to a cash-out boom,” quotes Bloomberg, this time citing a suit-stuffer named Michael Larson (identified as a “housing analyst”).

“Hello” Mr. Larson! Home-equity loans collapsed to less than 5% of their peak, which at least 95% of English-users would describe as a “crash”. One can only wonder what numbers it would take to cause this “housing analyst” to use the word “crash” instead of “boom”. One might even suspect that this “housing analyst” makes more money in a strong real estate market – and so his characterization might be a tiny bit biased.

The only truth in Larson's statement was his observation that the only activity taking place this in this market is respect to the (small number of) credit-worthy borrowers who are able to take advantage of the zero-percent-panic-interest-rates to refinance a minute piece of this mountain of debt (no more than 1%). Other than that, this market is dead.

The problem is that these over-leveraged “homeowners” are now about to face a worse, and much, much longer collapse in the U.S. housing market – which will make the collapse after the first housing-bubble look like nothing but a passing, bad-dream. What is ahead will be nothing less than a waking nightmare. There are no surprises here. A second collapse of the U.S. housing market was always 100% certain - but the Obama regime can be "thanked" for making it worse, courtesy of the second "bubble" they created in this market.

All of this has been detailed in recent commentaries, so I won't bore regular readers by re-hashing it. Instead, it is time to once again remind readers where this is leading. As I have maintained since shortly after the U.S. housing burst, and hidden facts began to emerge, this was a deliberately manufactured bubble (i.e. a deliberate scam) – which was designed to do exactly it has done: to rapidly accelerate the transformation of middle-class, Americans to poor, 21^st century serfs.

Indeed, we are already very close to the definition of a “serf”: someone who toils for a mere “subsistence” living – where all they are able to do is barely buy enough food to survive, while they pay “rent” to their “landlords” (the banks).

The banks “own” these homes, not the “homeowners”. For at least 25% of these “homeowners”, the balance owing is either so large that they could never pay-off their mortgage, or only do so through ultimately paying two or even three times what these homes are worth. The extremely modest number of “mortgage modifications” only seek to stretch-out the length of these mortgages. While that results in lowering current, monthly payments (and may make it possible to “service” the mortgage), it can add up to $100's of thousands of dollars (in extra “interest”) on what the “homeowner” must pay – to actually become a homeowner.

In short, for a rapidly growing segment of the U.S. population, they can either never become true “homeowners” (and are thus destined to always be “serfs”); or, their “freedom” from their banker/landlord can only be “purchased” by paying many times what these homes are really worth. Now, with the “second bubble” having burst, this trend is going to accelerate exponentially: as housing prices fall, “equity” continues to evaporate, loan-terms get stretched-out, wages continues to fall, and more and more simply lose their jobs; the transformation from “homeowner” to “serf” will progress relentlessly.

It is not like we haven't been “warned”. Regular readers are familiar with “The Bankers Manifesto of 1892”. It begins:

“...We must proceed with caution and guard every move made, for the lower order of people [that would be us] are already showing signs of restless commotion...”

It then continues:

“Capital must protect itself [i.e. the bankers must protect their money] in every possible manner through combination (conspiracy) and legislation.

The courts must be called to our aid, debts must be collected, bonds and mortgages foreclosed as rapidly as possible. When through the process of law, the common people have lost their homes, they will be more tractable and easily governed through the influence of the strong arm of the government applied to a central power of imperial wealth under the control of leading financiers [i.e. the bankers]. People without homes will not quarrel with their leaders.”

Let me re-phrase that last sentence slightly: serfs are easier to oppress (and steal from) than citizens (and “homeowners”). However, I would be totally remiss by not citing the conclusion of this document – arguably the most important part of this century-old “game plan” of the banking “fraternity”.

“The question of tariff must be urged through the organization known as the Democratic Party, and the question of protection with the reciprocity must be forced to view through the Republican Party.

By thus dividing voters [i.e. “divide and conquer"], we can get them to expend their energies in fighting over questions of no importance to us, except as teachers of the common herd [again, that would be us]. Thus, by discrete action, we can secure all that has been so generously planned and successfully accomplished.”

Is there even a semi-objective member of the U.S. population who would dispute the assertion that the last three decades of U.S. politics has been nothing but “fighting over questions of no importance” to the bankers?

Recall what was said earlier: “...the strong arm of government...under the control of the leading financiers.” They have already bought both members of the two-party dictatorship, so the endless decades of bickering amongst Americans about whether Tweedle-Dee or Tweedle-Dumb should (mis)lead them is nothing but a joke to the bankers. You (each and every “partisan” in the United States) are just “jokes” to the bankers.

The opportunity for millions of Americans to hang-onto their homes is rapidly slipping by. Politicians who care nothing about their own constituents serve bankers who have planned for decades to steal the homes of middle-class Americans – and turn them into their slaves. Compared to the 21^st century Banker Oligarchs, the “King” whom Americans over-threw more than two centuries earlier was a kind and generous monarch.

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written by breezer1, July 29, 2010

jeff, great stuff. be careful.

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written by Grumley, July 29, 2010

One thin layer of silver lining here, is that thousands of people are refusing serfdom and walking away from their mortgages, leaving the banks holding the bag. Of course there are instances of banks coming after some people over things like short sales, but these "corporate attacks" consist of a small percentage of walkaways.

Even the "stigma" of walking away is collapsing. I explained to a friend who is considering walking, that the agreement is that (a) you pay the bank money for eventual ownership of the property, or (b) you DON'T pay them money and they keep the property. That is the agreement, and therefore by walking away my friend is still "honoring" his agreement.

Let's hope it happens in numbers high enough to eventually break the backs of the banks.

By the way Jeff, I hope you're ready to run for office when everything is finally rubble. We'll need a new generation for forefathers.

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written by Jeff Nielson, July 28, 2010

Hi Realist.

Playing "Devil's Advocate" (one of my favorite roles), there is always a 3rd possible interpretation in the Age of Propaganda: that the data used to create that chart was "doctored". Do you remember if the source was someone you trust?

However, getting back to your theory, here's another "logical disconnect" (from a previous commentary): Michael Hodges produces a site called "The Grandfather Debt Report" (whose numbers I have cited in many previous commentaries) and whom I have corresponded with directly.

I have every reason to believe that he is honest, sinceere, and most likely accurate. He is saying that there was NO INCREASE in "total public/private debt" in the U.S. in 2009.

So here's the interesting part. We KNOW the U.S. government borrowed close to $2 trillion in 2009. So, IF there was no NET increase in total public/private debt, then TWO TRILLION of debt would have had to be "extinguished" in 2009 - to get back to zero.

There are only two means of "extinguishing" debt: repaying it, OR "destroying" it through default. Given what we know of the U.S. economy, how much was "destroyed" and how much "repaid"? About 90/10 (or worse)? AND Wall Street has LEVERAGED their debts by at least 10:1, and most of it is closer to 30:1.

So the question I have is WHERE is Wall Street's $2 TRILLION of write-downs/write-offs for 2009? Remember: they can DELAY write-downs with "mark to fantasy" accounting, but they CANNOT (legally) avoid write-offs on debt that has DEFAULTED.

"U.S. Banks Illegally Hide Write-downs"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=11844:us-bank-fraud-illegally-hides-write-downs&catid=47:us-commentary&Itemid=132

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written by realist, July 28, 2010

Jeff,

I saw a graph showing the decline in the value of homes while the debt used to purchase the homes was essentially flat for the same time period. There are two ways to interpret that graph. The first is that the value of the homes did significantly decline in the past few years while the debt used to purchase the houses basically remained the same. The second way is to conclude that because home values actually declined significantly for the past few years, the actual value of the debt used to purchase the homes has also declined. This second possibility raises serious issues as to the solvency of the financial entities that made the loans. If the value of the debt issued to home owners has declined to a fraction of the original loan amount, many of these lenders could be insolvent (due to leverage when making the loans). Which possibility do you agree with? I say there is no way that the lenders can get 100 cents on the dollar for the value of the loans they made.

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