Saturday, June 23, 2012
The game will continue as planned
Brother can you spare $100K?
Insanity as Einstein defined it is doing the same thing over and over and expecting a different result. Nothing could be truer for our financial system. As the economies of so many countries these days are in a slow motion lock up the solution which should be quite obvious by now is ignored like the plague. Exactly why anyone would expect that by giving yet more advantages to banks and investment companies would make our current economic picture better is a puzzle. Logic would dictate that if one method did not work after so many tries then it's time to change course. But that's not the case for the central world banks. Rather than focus on the actual customer the consumer it's content with looking in the mirror and adding more make up.
There's a vain attempt to pull out the tire pump and inflate the same bubble that burst in 08. Rather than embark on a long term plan to right the financial course that's been stuck on the rocks these last few years the central banks are taking a reverse course and lowering the standards for loans by easing collateral requirements. Haven't we been here once before? A home loan in 06 could be had with no money down and a borrowing max of 125%. All with little to no income verification. It didn't take a genius to figure that was a recipe for disaster. But the biggest problem here is that market values have dropped like a stone these past few years. That's left a ton of underwater loans and many empty foreclosed homes on the banks books. That picture has not changed much even after meager attempts to remedy the situation. It seem the banks will just not cave and give up that loss of value. That's kind of sad when you think about it. They'll bury a defaulted loan in a dusty file in a feeble attempt to look good to their shareholders (nothing like a little hocus pocus with the books), but in the end the home is eventually sold at a loss at foreclosure or worse torn down from decay. Either way the bank loses.
Anyway you look at it the present plan has not changed. It's all about making those who had little to do with the problem pay the bill. Yes there may have been a few consumers too greedy to see the end result but on average this is hitting even the financially responsible homeowners as well. And to add insult to injury this will affect even those of us in a better economic situation as governments cut services and increase taxes and fees.
On the bright side there were no bank fails this week (or is that really a good thing?)