Let it never be said that the American people aren’t resourceful or lack the capability to work their way through their problems, some have already worked the American Dream v2.0 out quite nicely..

From somewhere, forgot now or would link to it.

Do not underestimate how much American spending / economic data  is being supported by the defaulters… walk away from your largest debt and your monthly spending can immediately shooting up.

Even in some pieces in early 2008 we were writing about how for the first time in US history people were sacrificing their houses rather than their credit cards – a complete sea change to previous periods when the house payment was the one thing people would continue paying no matter what.  But when you put almost nothing down into your house (encouraged by policies in the middle part of the decade) – you change people’s behavior.

This is yet another form of “stimulus” – and one not only did we predict would happen in large amounts due to so many being underwater, but I expect to accelerate into 2010.  Strategic default is the official name.

Via WSJ:

Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.  But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its benefits.  Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.

“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.

People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.

Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.  Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. “We’re saving lots of money,” Ms. Richey says.

The U.S home-ownership rate has charted its biggest decline in more than two decades, falling to 67.6% as of September from a peak of 69.2% in 2004. (the long term range was 65% – and it held steady for decades – until the comibination of “easy money” policies by Alan Greenspan and the “ownership society” ethos of the politicians – owning at any cost is more important than being able to actually make payments on what you owe over the long run.  And even with all these foreclosures and walk aways, we are STILL over the long term average) And more renters are on the way: Credit firm Experian and consulting firm Oliver Wyman forecast that “strategic defaults” by homeowners who can afford to pay are likely to exceed one million in 2009, more than four times 2007’s level.

Sounds wonderful so far… more trips to Disneyland, more cruises, more dinners out.  We all win here, right?

Stiffing the bank is bad for peoples’ credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts.
Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion.
As a proportion of the economy, that’s roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.

What’s $400 billion among friends?  That’s just the Citigroup (C) bailout ($300B) plus an extra $100 billion on top.  Money is free in this country and grows on trees.  Don’t forget there is another round of fun to happen when all those who are taking FHA loans out now, for 0% down (with use of first time tax ‘credit’ as the downpayment) “strategic” default in 2-4 years.

And we’ll be told we need to do all the same bailouts, handouts over again because it’s important to support the economy via stealing from future generations so more cruises, dinners out, and trips to Disneyland can happen today.

Now as we mentioned last week, American’s wealth has jumped 5% – part of it through the stock market going up but another part is that debt is falling.  [Dec 10, 2009: Americans Net Worth Increases 5% Quarter over Quarter] Why? Well strategic defaults are certainly helping.

The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers’ pockets.

Again, this is the ongoing “stimulus” plan that no one really recognizes.  And all it costs is more living standard loss for grandchildren and generations after that.

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month — an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.

“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again.” (wow, someone’s been reading my blog – I used the exact same words… stealth stimulus)

Back to Ms. Ritchey, our teacher, above… she of big smile in the Wall Street piece.  Like many Americans she was living the good life with nothing down, and using the house at an ATM to get the life “she deserves” with the correct ameneties.  Sacrifice for a house she could afford?  That is so Midwestern.

In 2004, she and her husband, Timothy, bought a two-story home on Caspian Drive, near Avenue O-8, with a no-down-payment loan. They took pride in the amenities they installed: a powder room with granite countertops, a backyard pool and play area, and the purple-and-turquoise fantasy playroom upstairs for their three daughters.

These are all amenties, as we add them together over millions of households that via bailouts, backstops, incentive programs, and “free money” from the Fed being borne by future generations.  This is the connection people who are loving life now are simply not connecting the dots on.

The Ritcheys, received a loan modification which cut their payment, (which the bank was paid for of course via taxpayer money), but it still wasn’t to their liking – so they walked and scoured the neighborhood for an even better house now that they could leave their old house on the roll of the taxpayer.

“The Richeys turned down the lowest payment we could offer.”

On one trip, they drove by the house at 3152 Club Rancho Drive. It was bigger than their house on Caspian, had a pool with three waterfalls, and boasted a cascading staircase that Ms. Richey says she could picture her daughters descending on prom night. The rent was $2,195 a month.

You can extrapolate from there with millions of fellow citizens following in these footsteps.

The situation presented Ms. Richey with a quandary now facing more than 10 million U.S. homeowners who owe more on their mortgages than their houses are worth.

A few people still seem to have old fashion thoughts on taking on debts… hopefully we can get rid of them for the “betterment” of our economy.

Tom Sobelman, whose family of four lives across the street from Ms. Richey, at 3127 Club Rancho Drive, sees mortgages as a moral as well as financial obligation. He’s still paying the mortgage on an investment property he owns nearby, despite the fact that the rent is about $1,000 a month short of covering his costs.

Mr. Sobelman, 37, argues that people who choose to default are unfairly benefiting at the expense of taxpayers, who have put trillions of dollars at risk to bail out struggling banks. “All these people are gaming the system, and I’m paying for it,” he says. “My kids are going to be paying it off.”

Someone who gets it.  Thank you Mr. Sobelman.

Moral or not, the individuals who want to shed their mortgage debts are quickly transforming the Palmdale real-estate market.   Adam Robbins, who runs the local Realty World franchise and manages about 80 properties, says about 90% of his prospective tenants are people in Ms. Richey’s situation. So he and other rental managers are loosening rules to accept people who have been through foreclosures.

So now that it has been status quo to “walk away”, credit scores are increasingly meaningless as well.  The new Cramerica.

Oh… as for Mrs. Richey, who is employed on the back of the taxpayer as a public employee (via home owner taxes – how ironic)… well she was also a real estate speculator with other properties.  You can guess what’s going to happen to *those* obligations.

She’s also considering walking away from the mortgages on her two rental properties.
“You take a risk for the American dream,” she says.

What was your risk again? it looks like a heads you win, tails you win proposition – if the property goes up, you use it as an ATM to fund your lifestyle – see your 2004 behavior.

If the property goes down, you still win – just walk away and the taxpayers have it covered.

Thankfully with her strategic decisions, she has money to spend on new furniture – luckily her new home already had the granite and pool so no need to spend money on those things again….

Showing a visitor the personal touches in her new home, including a $1,800 dining set she bought with some of her newly available income…

Fireman Jay Fernandez from the opening of the story?  Not to worry folks – he brings down $8000 a month and now that he has walked away, his BMW is secure.  I know some readers would not be able to sleep at night if they were not confident that his lifestyle was in good shape.

With an income of about $8,300 a month and a rent of $2,200, Mr. Fernandez says he now has the wherewithal to do things he couldn’t when he was stretching to pay the mortgage. He recently went to concerts by Rob Thomas and Mat Kearney. He also kept his black BMW 6 Series coupe, which has payments of about $700 a month.

Of course he could of given up the BMW and bought a reasonable car for cash or a low monthly payment and tried to make his mortgage but… that’s for suckers.

So as we celebrate the economic data and talk about how “resilient” the American consumer is (yet again) let us not forget how it is happening.

America is now full borne banana republic.

Or is it all downhill from here?

Hahaha from my new fave blog Numpty – here – this is about right..

And the Dog’s Nob Awards 2009 for the most, the biggest, the most totally clueless economics commentator has just found a worthy winner, in the utter cock, that is Mike Norman

Check some classic statements from this nonsense (linked from image below)

“Since march, Gold has done nothing..”

.. yep, up 50% odd, another good call Mike 

“There is soon to be the mother of all housing shortages in the US…”

hahahaha this is the best one, there’s now  One in Four US homeowners underwater on their mortgages, the banks are delaying foreclosures to the market by the millions so as not to tank prices completely, and so they can carry on pretending they have real assets not just bad loans, yet..

Numpty thinks there’s going to be a housing shortage.

Dear Oh Dear.

This dog wouldn’t profess to be a master of the human’s  “imaginary money” system, it’s actually quite counter-intuitive to dogs, as in Dog-world it’s pretty simple:-

…We either do have a fucking bone, (or clue)  or we don’t.

Lots of humans on the other hand convince themselves that they do in fact have some bones, (and clues) when in fact they don’t.

But (and this is the supposedly clever bit)  they represent their bones by pieces of paper, that they all seem to just trust that one day you can always swap the paper  back for the same amount of bones at some future point.

Dogs would never go for this, just try taking that bone away from Jake Pitbull and swapping it for a few bits of paper, it ain’t gonna go well.

These days however if the dog’s got it right, they don’t even have to bother printing the paper, they’re just typing numbers into the keyboard things and then they all seem to think that somehow represents real actual bones.

Numpty Norman however thinks that just typing numbers into the keyboard thing is a good idea, we don’t want to have to go back to actually “having” things, its just fine with all this paper and computer “money”, who needs real bones?

This dog is strongly advising any other dogs who do have some bones, not to let Mike “Numpty” Norman influence your thinking, you definitely want to be listening to the one called Schiff instead.

This dog still isnt having any of this “recovery” nonsense, they can massage and manipulate as many figures and reports as they want, they broke it, they haven’t fixed it, it’s dead on it’s feet and stumbling it’s last few steps (months, maybe even a year) and then it will fall face-down-dead.

Anybody who believes these problems can just be seen off in a few months by Government printing, is not all that bright.

Watch all 5 of these videos in this order, and if you still believe it, well then you can’t be helped…

Do you dig .. the dog?

Obama negotiating with the Chinese  live on camera during his China trip.

Enjoy

Is Gold an attractive proposition?

Please Consider the link quoted below..

The governments of every major nation are going to default on their debts

There are two relevant questions: (1) How? (2) When?

Establishments around the world all deny this. They have gained power and wealth by means of the expansion of government. They have justified their success by insisting that the government-business alliance is the only way to establish economic growth and economic security for the masses..”

And then please consider..

“Every paper currency in history eventually reaches its intrinsic value – zero – and the Fed’s Ben Bernanke is doing all he can to see that the dollar becomes worthless sooner rather than later. As Marc Faber told an investment conference crowd recently, Zimbabwe’s serial inflator Robert Mugabe is Bernanke’s mentor.”

Gold stops this nonsense dead in it’s tracks. Consider the following scenario and understand why paper money is theft, by it’s very nature.

“Suppose you buy some real estate and intend to hold it for 10 years.

You have the choice to pay either 200,000 dollars for the property or 200 ounces of gold (in American Eagle coins).  At the end of the 10 years, the value of the U.S. dollar has fallen in half.  All real estate, quoted in dollars, has doubled.  But the price of your property in gold is still 200 ounces.

Along comes the Internal Revenue Service and says, “Sir, you have made a handsome profit on your real estate.  You bought it for 200,000 dollars and sold it for 400,000 dollars.  Here is your tax bill.  You, however, reply, “I did not buy the property for dollars.  I bought it for ounces.  I paid 200 ounces, and I sold it for 200 ounces.  I made no profit at all.  My house did not go up; your dollar went down.  But since I did not use your dollars, what does that have to do with me?

But our governments and banks conspire to prevent this, by insisting that we trade in their paper currencies and enforce court orders to uphold their system. Then consider that

THEY DO NOT HAVE ANY MONEY IN THE FIRST PLACE !

- THEY LITERALLY CONJURE IT INTO EXISTENCE!!

So you are forced to convert your real wealth into their paper pretend wealth, at which time they can then tax and inflate it away as required to suit their current needs.

“What is wrong with the economic establishment todayis that it raises its capital by having the central bank create money out of nothing.  In effect, our governments are robbing us and giving to them.

It makes money, not by creating wealth, but by going into debt.  The more debt the more they make.  This was the cause of the enormous profits made by Wall Street in the early years of this century.  The problem with this system is that conditions change.

Their high-risk strategies which make lots of money in the early part of the cycle cause them to go belly up in the late part of the cycle.  The last time this happened the Government admitted that its function was to rob from the common people and give wealth to these powerful interests.

It argued that they were “too big to fail.”  Well, they got so big because the Government stole wealth from us and gave it to them.  They never produced any wealth.  And the whole purpose of Bernanke’s ultra-easy credit policy of 2008 was to steal more from us and give it to them.

The system cannot continue as it is going.  The stealing must either progress to the point that it destroys our society or it must stop.  In 4th century A.D. Rome, they chose the former path.

People stopped using money; the society reverted to barter, and the economy of western Europe collapsed.  The barbarians swept across the Empire, and millions of people died of war, plague and famine.”

When is the world going to wake up to this nonsense?

Haha Classic TV from Jan 2008, Mike Norman (cock) versus Peter Schiff – Senator-in Waiting re the future of Gold.

Peter was of course saying, “Buy Gold – it has a long way to go yet..”  Mikey-boy was saying he sold out at $650 an Oz and that “Gold is a lousy investment“ 

If this Dog was called Mike Norman, this dog would stop going on TV debating people because it’s clear the Dog called Mike Norman doesn’t have a fucking clue about anything to do with bones.