The Great Unwind and the Final Redemption

The Great Unwind and the Final Redemption

by O. Max Gardner

What we are experiencing is called the global credit crisis for a reason. There is too much debt in the world. There is too much oil in the Gulf of Mexico and too little oil in the rest of the world.  What used to be up now seems to be down.  The stock market is going up on Monday and dropping more than 1,000 points Tuesday afternoon.  The economy is in a “recovery mode” but the unemployment numbers keep going up and up and up.  What is wrong with these pictures?

More and more economists are talking about the threat of a deflationary crisis ahead. Some are discussing hyperinflation.  Others refer to a “double-dip” recession.  A few even predict another depression.  What we know for sure is that Greece, Italy and Spain are broke.  The Euro has lost more value than the latest big fish just lost in Vegas.  Foreclosures are at historic highs and unemployment keeps going up.

So, what does this mean for you? Well, if you have a house that is under water, or more debt than you can reasonably hope to repay, your best options may be the unthinkable as in filing for personal bankruptcy. But it really should not be unthinkable to default on a loan or even to declare bankruptcy. Don’t stop reading. It is really a good option for many; it is moral, legal and good for the country. It has also become very common. You and your children will look back in a generation with pride.

In small amounts, debt is good. Home ownership is only possible for the young with mortgages, and many college degrees seem to be totally supported with student loans (don’t get me started on student loan debt). Working capital for growing businesses allow for inventory and distribution expenses. Lenders benefit as well: high interest rates are paid to pensioners on their life savings.

When debt exceeds a certain level it becomes a cancer on society. Easy credit fuels speculation which triggers bubbles. These bubbles lead to a temporary lift in apparent wealth, which increases economic activity beyond its sustainable level. But eventually more and more debt triggers economic decline with the inevitable glut of goods produced by an overheated economy.

What people are discovering too late is that their debt is not repayable. Not now, not in the future, not ever. They once had a hope they could wait out their bad times. This is true of many homeowners, many businesses and many governmental bodies. The “great unwind” is now upon us and is picking up reverse speed every day.  And, the unwind is going to be deflationary. Prices and salaries will decline, jobs will become more scarce, and debt will continue to increase.

The earlier you pull the rip cord the better off you will be later. In many states mortgage loans are non-recourse debts. This means that the homeowner has no personal liability for the debt after foreclosure.  Never make another mortgage payment in these states. Turn over the keys after foreclosure. You will lose all of your down payment, but the lender can never get another penny from you. Your credit score will fall. But you do not want any more credit. Right? If you are trying to quit crack, how would feel about your pusher reducing your crack score? Does that make sense?  If you plan to fight the war on drugs, you fight to win, right?  Stay off crack (I mean credit) for a few years, and they will take you back with open arms.  Just be sure to look before you leap back into the credit patch.

There should no longer be any moral question about whether it is wrong to walk away from debt legally. The advent of limited liability corporations and the legal ‘personhood’ of corporate shells have allowed business to create one sided bets for years, and they happily walk away from “corporate debt” when the tide shifts. Donald Trump, the famed “Donald”, surely knows how to play this game.  The Donald is a credit gamer.  Whatever you say about Trump, the guy is a real player at in the debt cancellation game.  This may even be the basis for a new show—The Bankrupt.

But, Trump is not the exception to the rule.  The Trumpum tactics are the calculus of 21st century finance, and you are a bit player in this game.  The Big Players are General Motors, Chrysler, Lehman Brothers,   Bear Stearns, Washington Mutual and Countrywide.  They have either eliminated their heavy debt-loads by bankruptcies or by forced liquidations and mergers with the FDIC picking up the financial pieces.  And, even the Great Mortgage Bankers Association of America recently accepted a $40 million dollar short sale and walked-away from its former world headquarters on K Street in Washington along with about $45 million in unpaid debt.  If you want to talk about moral hazards, then these are the players to talk about.  Forget about John and Mary Smith on Main Street.  John and Mary are mere pebbles in the sand on a very large beach.  Nobody notices John and Mary and from my point of view nobody in Washington really cares.

The current administration is implementing a policy of recapitalizing the banks (whose assets are still worth far less than their own debts) by lending them money through the Fed for nothing and borrowing back the money through the treasury for a lot more. This is called transferring debt from the banks to the government. But government debt has the same drag on societies in the long-run, they can just hold their breath longer.  And, the so-called HAMP program is nothing more than a smoke and mirrors game designed to make us think that something is being done when in fact nothing is happening other than secretly extending the day of the final reckoning.  In short, there is no value in the Net Present Value Test of HAMP.

In the end debt default always occurs in these situations. The debts cannot be paid by the combined debtors in a society. The default may occur when inflation destroys the value of the debt over time. Or the default may occur with the eventual death of the debtor. Or the debt is discharged legally.

The longer this process takes, the more damage occurs to the society. And this process, in my view, is the true moral hazard for America.  The hazard of not legally and effectively dealing with these mountains of consumer debt.  There are strange incentives that a person has when their debt is unpayable. Why would you try to earn more? The more you earn the more debt you pay. But you cannot earn enough to get out of debt. So you stop trying. If you owe too much on your house, you might decide you have nothing more to lose on your house so you will simply decide to wait it out. You will minimize the repairs and improvements on the house, rent the house out to frat boys and hope for the best.  You might as well best your nest-eggs on winning the Power Ball next Wednesday. The odds are not in your favor.  The wait it out strategy will only prolong the financial and emotional agony.

The banks are great examples of distorted incentives. They have sucked up well over $3 trillion of government money. They are still paying huge bonuses. They are not lending to businesses in need. They are not lending to consumers.  They have “raised” their consumer credit standards.  They have not changed any of their prior internal “standards.”  Distorted incentives indeed.

In the ancient days the Christian nations would have a debt Jubilee every 30 years. It sounds like a party because it was. Debts were forgiven en-masse when societies became constipated with debt.  And, in the days of the Old Testament, individual debts were discharged once every 7 years.  It was also considered a sin to try and collect debts after this 7 year discharge.

Suffice it to say we are currently a nation of many, many sinners, the vast majority of whom are trying to collect debts owed by consumers.  The only way to run these money changers out of the temple, and to secure true redemption, is to declare personal bankruptcy.  You need to legally purge yourself of your debts and your houses and your expensive cars and start working for yourself and for your family.  Praise the Lord and pass around those bankruptcy petitions.  Like now. Like yesterday.

O. Max Gardner III

17 Responses

  1. 2 Anonymous… when the POTUS appointed Rahm E… it was quite clear how this administration would be doing things… they thrive on crisis,,,, but the people are waking up…. it is not to late… but agree we are in dangerious waters.

  2. Blame a lot on Mr. Henry Paulson. How do you bail the banks out and let the people sink?? But this WAS Mr. Paulson’s goal – under the guise of the “economy as a whole.”. And, he got down on his hands and knees to beg Congress for support. Congress supported him – and so did the media. And, the media began a campaign to blame the American people. The President remained silent – and rarely does he ever address the foreclosures – he shifted the country’s attention to Health Care – not an invalid goal – but not a reason to ignore foreclosures. All is politics.

    After the government bailed out the banks and entities like AIG – backers of the bailed out banks and entities have made money. CEOs are making money. Default debt buyers are making money. And, foreclosure promoters are making money. None of the benefits of the bail-out were passed onto the people – who were the targets and victims.

    My biggest outrage, however, is the courts. With the exception of a few astute judges, courts are deciding cases as if we are still living in 1970. Courts are not addressing the fraud (under another name called SUBPRIME securitization) and are not addressing the cover-up of the fraud.

    We stand alone before judges – judges already influenced by Congress (who did nothing) and the media – who labeled us “deadbeats.” Such continued atrocities against the people, however, will not survive. The people are America.

    Thank you to all the judges that recognize was is really happening.

    Like you PJ – I have seen much. And long before Congress asked (in 2007) asked Mr. Paulson – “What Happened???”

  3. 2 Anonymous, Willow & Alina…. have watched this scenario for over 6 years crush both the young and old and everyone in between where I live… people that never had skin in the so called game…. since 2004 escalating “property assessments” based on the “bubble” is the untold story here… when they start selling properties on the county court house step’s due to unpaid “inflated” taxes… then perhaps the story will be told.

    This is the “second tier” of theft that the goneif’s are counting on….

  4. Well said Willow. We are all warriors in the fight to expose the truth regarding the fraud being perpetrated in courtrooms across the United States.

    It is our duty to make sure that was has happened in the past few years will not happen again in the future. Our mission, for all those who choose to accept it, is to leanr about the issues, research our state’s laws, keep an eye on our state’s legislatures, be a presence in our courtrooms, and fight the fraud with every ounce of our being.

    Knowledge is Power!!!!

  5. I agree, Anonymous. At this point, Mr. President is a failure. There IS NO change I can ever believe in. In fact, I can’t believe ANYTHING anyone in the government says. None of them deserves my trust. Not one. Period.

    Once, long ago, I read an interesting book entitled, Zen and the Art of Motorcycle Maintenance. It was a philosophical discussion on values with an focus on what is quality. It’s hard to define but, like pornography, ya know it when you see it, as the saying goes.

    In the midst of crisis and disruption and change, there is opportunity. The panic, fear and worry have now left. I am stronger now, more resilient. I have detached from the outcome but not the fight. Sun Tzu said:
    If you know your enemy, you will win some of the time.
    If you know yourself, you will win most of the time.
    But if you know yourself and your enemy, you will win all of the time.

    Here, we learn who the enemy is, what his tactics are, the strategy of their game. Every day something new is revealed. But it is up to us to know ourselves, what we are made of, where our strengths and weakness lie; to face the fact that we’ve been deceived and that deception was intentional and pervasive and enabled by a government we once trusted. We are not failures no matter what happens. But neither do we need to see ourselves as victims. No, we did not choose this fight or this money and class war. But it is upon us nonetheless.

    I am a soldier now. My friends are valuable to me and so are the things that I believe in: fairness and justice. It is said, in Budhist teaching, that often great tragedy and strife, serve as a call to awaken that spiritual warrior within. And so it is. Everyone of us hears the call to serve a greater good. We fight today so that others may live better tomorrow.

    So, suck it up kids, we’ve got work to do!

  6. Hi PJ

    You have a point. But, this country is in dire straights – no matter how Wall Street tries to falsely present as otherwise. And, for those that are watching and trying to pick up points as to counter successful challenges to foreclosures – all will soon come crumbling.

    Stand by my old saying – Wall Street – and whoever is protecting them, “bit the hand that fed them.” All will eventually backfire on those that feed upon greed. If the US suffers – so will the foreclosure mill epi-profit centers.

    The people will take back America – give it time. And, those that are feeding upon greed will suffer – similarly to how they caused suffering upon the American people.

    Obama, so far, is a failure. America is in trouble.

  7. Max seems to have inspired a good ammount of self reflection with this peice….

    “Suffice it to say we are currently a nation of many, many sinners, the vast majority of whom are trying to collect debts owed by consumers. The only way to run these money changers out of the temple, and to secure true redemption, is to declare personal bankruptcy. You need to legally purge yourself of your debts and your houses and your expensive cars and start working for yourself and for your family. Praise the Lord and pass around those bankruptcy petitions. Like now. Like yesterday.”

    While I do respect Max… is this really an option for the little old lady up the street that owns and has lived in a modest home and as WORKED their entire life, and is now forced to eat cat food on toast so she can pay her “inflated property tax assessment” becasue a “flipper/speculator” built a Mc Mansion a few street’s over… with a wink,wink, nod, nod of an salavating lazy local “elected goverment” that looked the other way in established zoning???

    You get what you elect… is the point… each and every time…

  8. karokahn,

    Here the question – is the “default” (mortgage) originated debt – secured or unsecured. Once loan is “charged-off” – contract is gone – and what is left??

    And if some party wrongfully pursued foreclosure – when they were not the creditor – this was fraud upon the borrower – and the court.

  9. Material things come and go homes come and go but it’s choices we make that define who we are and I choose to know and to have my questions answered my due process and laws to stand up for me as a consumer however if I admit defeat in my mind then it will perpetrate my heart and I can not let that . therefor, later in life I can say I did my bit I tried and I can live with myself knowing I was brave

  10. There is one basic fallacy to the article that negates the entire premise. Nothing was loaned. It is a paper debt. Neither The banks nor the FED nor the government stand to lose anything of value. They will only lose the right to steal the value we create by work. No lawful money was ever borrowed. A paper promise backed by the FED’s collateral was exchanged for a paper promise backed by a homeowners collateral. If no one ever pays a “banked-originated mortgage again not a single bank will ever have to give up anything of substance. The will merely do some math on their balance sheet.
    I’m so sick of people saying banks loan money. No they loaned a right to money but they know it will never be redeemed against the collateral for lawful money per 12 usc 411 because they have tricked people into think a promise to pay is payment.

  11. And to add fuel to the Fire:

    I called H.O.P.E. for help. No help from H.O.P.E. as they told me to cut back on my food bill. I called H.A.M.P., I was 0.1% from qualification, and finally US Bank sent a letter which required contact with the Consumer Credit Counseling. It was recommended that I pay the monthly mortgage and not dispute in litigation. CCC then gave me links to several web sites for free legal advise.

    Seems this government wants to foreclose and / or force bankruptcy. The parties of knowledge saved themselves, the rest of us are forced to fight a war with no end result in site.

    BSE .

  12. Willow

    I agree with your points. However, my only debt is a home that is upside down $ 250 K or more. This will eventually force me into BK without any fault to my own. I can pay the mortgage but refuse due to the crimes committed. Who would have thought a home would be worth less than 1/2 the appraised value six years after closing. The problems lies within the government who allowed Wall Street and the Banksters to create the dirty money. They want to destroy the moral common people. Further, I believe this is more than a mortgage crisis. It is beyond our thinking and it is nothing more than a currency war. Our paper is worth more than yours, So we have to destroy the other paper to make ours the median of exchange. This is a war that did not ask for enlistment, it was mandated by all without us knowing.


  13. Our construction business had to close in 2008. We were working for builders who had a hard time paying us for our labor or they filed BK. We were left with in a real bind with lumber yards and other creditors. We tried desperately to find work in other areas but no one was hiring just laying off people.

    When the creditors starting calling for both personal and buisness debt the calls were relentless. Some started at 6 am and continued till after 9 pm. Our retirement lost and all of our savings gone. We had no option but to file BK. Our house was foreclosed on in Feb 2010. We were brought up to pay debt and take responsibilty for our debt. We had to suck it up and file BK. BK became final July 2009.

    Our BK did not go smoothly. Seems like every other day there was a problem which our attorney had to deal with. Still today I receive calls from our second mortgage. I have logged over 80 calls with the last one made 6-2-10. Our Bk attorney just told us they will stop calling. He is done with us and will not return calls.

    So for us filing BK was not a fresh start. We still have trouble in the job department, had a real hard time finding a place to live, and everyday that I drive by my house I am reminded what has been done to decent people trying to live a normal life. Bk did not give us a fresh start, it just reminds us of how we failed.

  14. Filing Chapter 7 is easier said than done. There is a new means test that makes it virtually impossible for anyone to file a 7 if they have income and mostly consumer debt.

    You can thank the banksters for changing the BK rules and adding the means test last go around. You can also thank them for defeating Dick Durbin’s cramdown legislation in the senate last year.

    If cramdown or the means test were to change, I think we would see a stampede down to the BK lawyer’s office.

  15. For the most part, I agree with this article. The world IS awash in debt. But how much of that is really real and true? How much of that debt isn’t just crap? It’s one thing to pay back a debt and another to try and pay back a debt with inflated and loanshark interest rates, fees and other BS. 30% on credit cards? Come on. We know that’s garbage especially when the banks are getting money from the Fed at zero interest.

    I think we need to look deeply at ourselves and come to see what we, as individuals, can contribute to our society. We all have gifts, talents, knowledges and skills. Many of us can and do work. That contribution in its many forms has value to oneself and to others. I’ve no clue how to fix a plumbing leak but I am grateful and will be more than happy to pay someone who can. Thus, we exchange our talents and skills with others.

    I also believe that most of us are imbued with a sense of fairness and justice; of the rightness of things. What upsets us most is that things ARE unfair…the interest rates are usury; the inability to modify a relatively simple contract is frustrating; not knowing who the hell we owe and how much is ridiculous. Honestly, why pay on “debts” that are out of line with what we borrowed and are inflated? There’s simply no point. Moreover, we begin to realise that the people, entities and institution we have trusted over the years are no longer trustworthy in every sense of that word.

    We have grown, through our collective trials, aware that something is terribly amiss; out of balance. Solutions proposed are inefficient because they do not address the underlying fundamental issues that are the causes. All causes have effects and all effects have causes. Stop-gap measures do not address the causes. Hence, the problems continue.

    Walking away from debt that is inherently unfair IS the right things to do. We may not like it because it creates an inner conflict of our desire to do what is right. But is charging unfair fees and interest right? No. Is foreclosing on homes by entities that don’t own the right, title and interest do so right? No. By standing our ground and pushing back we draw a line in the sand and say NO MORE. And that IS THE RIGHT THING TO DO.

    There has been a great abuse of power here. As they say, power corrupts; absolute power corrupts absolutely. We have become soldiers in a war for justice and fairness. Debt is besides the point.


  16. Philadelphia – Fraudulent-conveyance-quiet-title-packet

  17. I have already come to terms with having to file BK. I will be the first person in my family to do it. Strangely enough, I no longer feel guilty about it, just relief.

    I just hope that the BK attorney I hired will help me during the adversary hearing. He tells me he doesn’t litigate. In fact, none of the BK attorneys in my area do. They all just file and smile. *sighs* But I was adamant during the consultation that I would be challenging the pretender lenders right to foreclose and he said he understood.

    Great article. Thank you.

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