So says Charles Hugh Smith on oftwominds.com
In fact the dissolution of the insolvent parts of the U.S. banking sector–yes, the investment banks, the money-center banks, the regional banks, and the savings and loans–would actually be an enormously positive development for the nation and indeed the world.
Let’s start with the fact that a huge number of these lenders are insolvent. If all their bad loans, bad derivative bets and off-balance sheet losses were forced to be marked to market/liquidated to raise capital, then major bank after major bank would fold/enter bankruptcy.
And what exactly would be so bad about that? Businesses go under all the time. The truth is these banks will never ever recover the loans they wrote, so why try to prop them up with taxpayer funds? To bail out the ultra-wealthy owners of those banks, of course.
Just to recap:
1. banks/lenders are already insolvent; the money’s already been lost. Trying to hide the fact or paper it over with taxpayer bailouts changes nothing.
2. the only people who will be hurt by the recognition of bank insolvency is fat cats/ the top 1-5% of citizenry.
3, housing and rents have risen three or even four times faster than wages; to reverse poverty, the historical ratio should be re-established.
4. the best way to do this is repudiate all the bad mortgage debt and sell all the distressed homes for $1 and up to whomever will restore them to liveability and live in them/rent them–no government funds required.
Now let’s count the ways this will help the nation.
1. Instead of struggling to pay a bloated mortgage or skyhigh rent, millions of people will be paying to fix up an abandoned house and the property taxes. They will have a stake in their house and neighborhood and every incentive to improve it.
2. banks don’t need to write mortgages for 10 million homes. No fees will be generated, and there is no investment banker needed to package the mortgages into deceptive securities. Good riddance. Loans are essentially commodities and should be as cheap as any other financial commodity.
3. Property values take a huge one-time hit. OK, so we are collectively not going to retire as millionaires based on a real estate bubble. If we are collectively paying much less for rent and mortgages, then we can start saving actual money rather than feeding off a frenzy which was doomed to collapse anyway.
4. Instead of entire neighborhoods turning into crime-ridden hellholes, people will reclaim the neighborhood one house at a time, with no government funds required.
Now who would be hurt?
1. owners of lenders’ stocks –mostly insiders, hedge funds, financial elites. Pension funds who didn’t exit yet will take a hit but 75% of the losses have already occured.
2. investors who bought the mortgage-backed securities and derivatives. Again: the money has already been lost due to poor risk management, and trying to obscure this doesn’t help anyone.
3. Wall Street and the thousands of jobs created spinning bad debt into bad securities. Many industries have been forced to shed hundreds of thousands of jobs; now it’s the banking industry’s turn.
