Wednesday, October 20, 2010

We are witnessing a modern day Shay's rebellion - with lawyers

Time Magazine's idea that QE2 and armed insurrection are correlated is utterly absurd. There is a nugget of wisdom, however, in Time's crazy screed:

Lower rates do tend to favor borrowers over savers. And the largest borrowers in the country are banks, speculators and large corporations. The largest spenders in our country though tend to be individuals. Consumer spending makes up 70% of the economy. And the vast majority of consumers are on the low-end of the income scale. So I think it is a valid question to ask whether the Fed's desire to drive down interest rates at all costs policy is working. Companies are already borrowing at low rates. They are just not spending.

Well-said. Lenders enjoy nice margins thanks to self-fulfilling inflationary animal spirits. The more fearful lenders feel about currency prices (and expect higher interest rates), the more they hoard cash/commodity reserves as stores of value, the less credit is available, the more the Fed wants to goose up lending, the more interest rates are kept artificially low, the less currency is worth tomorrow, the more fearful lenders feel about currency prices (and expect higher interest rates), and so on. Lenders derive substantial premiums from the federal government's buying-back mortgages that are allowed to reach foreclosure (the rationale behind this is: there's no secondary market because of the stagnant real estate market, so the government needs to swoop in and back-door bailout the lenders). What's more, lenders derive SUPER premiums by cutting as many corners in the foreclosure process as possible. So, it seems, the financial sector really has little incentive to address the flaws in the foreclosure process or in the low-interest rates (the same goes for their failure to adjust their own expectations - lenders cannot coordinate new deflationary activities because of the cartel effect).

So the Time article may have blundered on what to call it, but even a blind squirrel sometimes finds a nut. We aren't about to witness a modern-day "Civil War," rather, it's a modern-day, MARK MY WORDS: VIOLENCE-FREE analog to Shay's Rebellion. Leading the charge to the courthouse steps against systemic creditor tyrannies is a new breed of lawyer and citizen rabble-rousers. The Florida-based Ice Legal Firm's deposition of now-infamous Cheryl Samons (the robo-signing right-hand to now-infamous mortgage-lending attorney David J. Stern) was the first wave of what I expect will turn into a rising tide of foreclosure-fraud lawsuits and corporate criminal liability charges.

This gives me a new perspective on the foreclosure freeze. Lenders ought beware the end of this firewall because its principal benefit isn't actually to keep homeowners IN (their homes) - rather, it's to keep the lenders OUT (of court).

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