Sunday, October 6, 2013

Self-denial and cascading economic pandemics

Borrowers are Assessed Undisclosed Risk by Most Courts

Self-denial and cascading economic pandemics
The purpose of this article is to piggy back on the recent articles from dozens of economists who are yelling at the top of their lungs that we are deluding ourselves if we think acceptance of the status quo is self deluding and will lead to economic and societal chaos. The focus of my writing is on legal, moral, economic and accounting reasons for denying foreclosure as a remedy BEFORE assessment of the transaction and the risks that were withheld and with intentional misrepresentation (fraud) of the risk factors with inflated appraisals, and failure to disclose the real lenders, the fees earned and the parties involved.
This continues the discussion about whether we should be saying that borrowers should pay the debts AS CLAIMED or whether we should be asserting that borrowers are liable only for the risks they assumed and accepted. I again remind the reader that this issue has already been decided under Federal law. The Truth in lending Act and the
State deceptive lending acts spell it out quite clearly --- the borrower is to be informed, with enough time to process the information and seek professional advice about the terms, parties and details of their loan transaction. Most important amongst the disclosures is the requirement of disclosing the true lender; transactions by lenders with a pattern of engaging in such withheld disclosure are branded "predatory per se."
The horrid state of self delusion in our society is chronicled in Naked Capitalism. The basic thrust of a deep and broad analysis of our economy and the effect of major shocks is presented, documented and proven. The bottom line is that the deeper the shock and the longer it is allowed to persist, the harder it is for society to recover. Applying the principles enunciated in this article which expresses irreversible damage that occurs over weeks, the seven years of economic collapse endured thus far presents a high probability that the economy and our society will never be able to restart without widespread acceptance of changes in deeply held beliefs and presumptions. Pervasive self-delusion is clearly documented here as the major impediment of starting to repair, regroup, and take us from what is actually a continuing net decline to an actual positive growth curve.
Interpolating the data, it is obvious is that the state of our society and economy is improperly reported (self-delusion) in a vain attempt to maintain consumer confidence while those same consumers are short on cash, short on income, short on savings, suffering shrinking income, increasing costs, and are short on available credit. The current model, developed over 40 years, was to replace earnings with credit. This was a going out of business strategy. And that is what happened.
We now live with an unsustainable anomaly --- the financial and data intermediaries are thriving while the real parties in interest (buyer and seller of products or services) are not reaching sufficient levels of income and growth. This has led to an economy which shows that roughly half (46%) of "economic activity" comes from financial services, that supposedly intermediates capital and payments but now accounts for an out-sized share of GDP. If the reported figures are even close to being truthful from the financial services sector, our GDP should be at least $50 Trillion, based upon long-trusted ratios in which financial services typically account for about 16% of GDP, intermediating in commerce.
Only two conclusions are possible. One is self-denial in which we act as though the economy was in fact operating at a $50 Trillion level --- an obvious run for the edge of a cliff. The other is addressing reality, which is that the growth of the financial services sector from 16% of GDP standard to 46% of GDP as reported is fictitious and based upon false reports based upon fictitious transactions. This would mean that as a minimum the $17 Trillion in GDP would be adjusted downward removing 30% as mere smoke and mirrors.
With the real GDP thus set at around $10 Trillion and removing the veil from fictitious transactions, fictitious assets and fictitious liabilities, the too big to fail conglomerates would either sink or swim on actual water rather than the appearance of water.
Nowhere are these transactions more pandemic actions of self-denial than in the alleged mortgage bonds that are neither mortgages nor bonds. Nor are they owned by the intermediaries. The fictitious transactions in which ownership of those non instruments are booked as sales, commerce and part of GDP, once removed would necessarily cause compensating adjustments elsewhere in the economy. Profits reported by companies providing financial services would be reduced and past reports would be adjusted downward, resulting in lower stock prices for their stock and higher rates for them to borrow.
The corresponding credit entry would fall to homeowners who were punished by a system that had blamed them for taking on more risk than they could afford. In fact, the adjustment would recognize that the assumption and acceptance of excess risk was hidden under deceptive underwriting and lending processes --- thus created by the Wall Street banks who are the sole parties against whom the excess risk would be assessed. But first it must be acknowledged that in cases of widespread systemic fraud that neither the lender investors nor the homeowner borrowers were given any reasonable opportunity to assess or accept the excess risk and that therefore their contracts must be reconstructed from the totality of the circumstances rather than the recitations in instruments prepared by the Wall Street banks.
We do have enough information to know that neither the lenders nor the borrowers would have signed up for the highly complex deals being offered to them under the guise owing offered FOR them. Since that is axiomatically true based upon formal a studies and the 50 states Attorneys General and the myriad of state and federal agencies that have concluded that lending and servicing practices were wrong at origination and continue to be wrong.
Continuation of Foreclosures based upon an untrue assumption of risk sharing as expressed by instruments based upon false pretenses will only continue the pattern of self deception and the resulting pandemic of economic decay and decline.

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