November 20, 2010
There are those who try to excuse the financial industry’s part in this economic crisis by assuring us that the homeowners being foreclosed on were not the victims in this mess and that they should have known what they were getting into with all those iffy first and second mortgages. Perhaps. But no one can deny that these “non-victims” have been paying for their folly over the last two or three years, along with the rest of us, whether they deserved it or not.
So, what about the financial industry? When are they going to pay, instead of getting paid, for their folly? Well, there are signs their comeuppances may finally be on the way and that, in small, desperate ways, the financial sector knows this.
I’m speaking about the foreclosures scandal and the plethora of legal actions in which everyone – from homeowners in class action suits, investors trying to force the big banks to buy back the crap mortgage-backed securities they sold them, to lawsuits charging them with fraud under the RICO acts – are now trying to force the banks to pay.
Once again, the bankers came before Congress this week, to grovel and apologize and promise never to do it again. Desperate times.
Once again, Congress was warned that “The disarray stemming from flawed foreclosure documents could threaten major banks with billions of dollars in losses, deepen the disruption in the housing market and hurt the government’s effort to keep people in their homes.” http://www.npr.org/2010/11/16/131354003/watchdog-foreclosure-mess-could-threaten-banks
Once again, Congress tried to slip one over on us with a law that would paper over the banks’ “mistakes”. Thankfully this time, the President used a pocket veto to waylay them, for the moment, at least.
And once again, Mr.Bernake has instituted that most desperate move of these desperate times, as far as I can tell, more quantitative easing. In an article from The Falls Church New Press discussing all this, http://www.fcnp.com/commentary/national/7826-the-cpi-trends-toward-deflation.html, Nicholas F. Benton points out another fearful aspect of these desperate times for the financial industry:
“The reality is, however, that the Fed’s move was a desperate attempt to fend of deflation, the dreaded threat of an uncontrolled downward spiral in the value of goods.
Many feel that covering up that threat is essential to preventing a new, massive downturn in the U.S. economy. Only by maintaining a happy face, by talking up any skimpy positive economic news and keeping up appearances, can the readily-duped American consumer be persuaded to buy, buy, buy at current prices, they argue.
Going into the coming holiday shopping season, this is especially important.”
I’m not smart enough in economics to know whether we’re headed into inflation or deflation, but even I’m smart enough to know that if 25% of the consumer base making up the foundation of this debt-supported economy is unemployed, under-employed or has outright given up on employment, the financial system that depends on their paying off old debt and incurring new debt to keep the balls up in the air, might – once again – be heading for a big pile of doggy doo.
As Yogi Berra once said, “It’s déjà vu all over, again.” This time, though, neither the Fed’s intervention, Congress nor a settlement with the state attorneys general may be able to save the financial system from all those angry homeowners and investors they screwed and all those lawyers who smell blood in the water. (The RICO suits alone, if successful, would triple the amounts the banks would have to pay.) QE2 may have no better effect this time than it did the last time and, if it doesn’t, there’s a good possibility that unemployment and underemployment will continue to erode the foundation of the financial system. Desperate times, indeed. So, what do we do if the TBTF banks begin to fail yet another time?
Back when I first bought the house I live in, the strip of land on the north side of the house was shaded at the east end by a huge, old elm at the back corner of the house. There was very little variety in what grew between that side of the house and the neighbor’s fence – some type of low growing ground cover and three little bushes – but, in the summer heat, it was cool and shady. My son could put fans in those north windows and cool that first floor apartment without air conditioning. And I loved watching the birds that nested in the middle branches of the tree outside my upstairs windows. It seemed to be a win-win situation.
A couple of years later, we had one of those spring rainstorms, fronted by straight-line winds, that sweeps through the area periodically. I woke up the next morning to find my kitchen window completely blocked by a huge branch from the elm that had fallen onto the roof of the first floor extension below. Because the local tree trimmers were busy with similar situations all over the city, were asking what seemed like exorbitant prices and were booked solid for weeks, my son finally contacted a friend. He and his father came over and helped my son take down the branch. We were lucky. The branch had been high enough in the tree and had enough wood and bark still attached to the tree, that it had acted as a spring and prevented the branch from crashing down hard enough to damage the roof. After removing the big branch, the three men trimmed some other branches they could reach, noting the rot that was setting in, but patching it up as best they could since we simply didn’t have the means, at the time, to take the old tree down. The elm tree was, in effect, too big to fail.
Our second warning came during the ice storm that I’ve written about before on this blog. The weight of the ice finally took its toll and sent the entire top quarter of the old tree crashing to the ground that second night. Again, we were lucky. The top had fallen in the area between our house and the neighbor’s house without damaging either of them. Nevertheless, we all realized our luck was running out. That spring, my son and I scurried around getting estimates and trying to rework our mutual finances without much luck. Even the lowest estimates were beyond what we could pay and, since the tree had done no actual damage, the insurance company would not cover any of the cost. But the too big to fail tree had become too dangerous to save. Finally, help came from our neighbor whose father had a friend, bonded and licensed, that would take out the tree for half of what anyone else had wanted. Since her house was in peril from the tree, too, the neighbor even offered to pay half of the cost. I shuffled some bills onto a credit card, came up with my half and the old tree came down.
Its absence left some ugly scars. One of the small bushes had been damaged enough that we had to cut it down, too. The other two huddled against the fence where a newly emboldened rush of vines did their best to overgrow and strangle them. The naked ground was littered with sawdust, wood chips and twigs. With the area now open to the summer sun for much of the day, the first floor apartment was harder to cool. And the ancillary damage to my garden, where the truck with the cherry-picker had backed over it in order to reach the tree, lasted through that season and part of the next, before it finally repaired itself.
In spite of this and undoubtedly because of it, something quite amazing has happened, too. Over the last three years, as the sawdust, wood chips and twigs have rotted into the soil and the space has opened to the sun, a completely new ecosystem has taken hold there. Granted, this year it was like the wild, wild West, with at least thirty new types of plants growing willy-nilly and at prodigious rates. They will have to be tended to – especially that gunslinger of a vine which, while covering everything it can reach with lovely green leaves and little white flowers, eventually will cause their demise if not taken out, itself. I find that I have become the new sheriff in town. In doing my duties, I’ve also found that at least six of those new plants are edible or have edible parts at one stage or another of their yearly growth cycle – a bonus for these desperate times.
We Americans hate change, not knowing whether it will be to our benefit or not. It’s hard to imagine the American Dream without those big banks offering a constant stream of credit (and debt) with which to buy and build. Yet, when rot sets in and too big to fail becomes too dangerous to save, we may have to take them down for our own safety – especially now, when the constant growth economic paradigm has begun bumping up against the realities of peak oil and climate change. Yes, it will be ugly for a while. Opening up to sunlight the ground that paradigm has overshadowed for so long might set off a vigorous and uncontrollable new ecosystem growing in entirely new and frightening directions. And yes, in the wild, wild West that will undoubtedly exist for a while, we will need to prune and shape and be diligent in tending what grows there, but in allowing the sunlight in and giving that ecosystem a chance to grow, there will also be benefits we can’t imagine, now.
Desperate times, we’re told, call for desperate measures. As the old order passes, making way for the new without fear may be the only desperate measure that will save us, now.
- Tales of foreclosure desperation, misery (theglobeandmail.com)
- Foreclosure class actions pile up against banks (seattletimes.nwsource.com)
- Those Contrite Mortgage Servicers Have Plenty to Be Sorry for (dailyfinance.com)