[A-List] Nausea Rules

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

by Jim Kunstler

www.kunstler.com (March 12 2007)


Here's an idea: when the securities markets go south along with the rest 
of the US economy in 2007, maybe the smoothies on Wall Street should receive
end-of-year "cash-negative" bonuses, meaning instead of a check for, say, $25
million the day before Christmas, they get an invoice saying "please remit $25
million". Who to? Good question. One might suggest the nearest firefighters' or
teachers' pension fund - except the idiots who run those retirement funds bought
mortgage-backed paper with their eyes open. Okay then, let's say the Wall Street
boys send their checks into Amtrak. Maybe then the cafe car between Albany and
New York City will re-open so that in the course of a 2.5 hour trip a person
might get a drink of water.

A tsunami of nausea seems to be sweeping across the media now in recognition
that the Potemkin edifice of mortgage finance is imploding like a discarded Las
Vegas casino. What it comes down to is that several species of newly-engineered
financial Frankenproducts have been based on loans for houses that will never 
be paid back. Not just a few loans. Massive numbers. These, in turn, have been
bundled, swapped around, and leveraged into other plays which now depend, for
instance, on x-number of unemployed car dealers and underpaid busboys ponying 
up the "vig" for some piece-of-crap collateral that will soon be a third its
previously appraised value. It will be easier for the car dealers and busboys to
walk away from these deals than it will be for the smoothies who used all this
bundled bullshit to hedge credit default swaps and play the yen-to-Euro carry
trade game to wiggle out of their positions. And the unwinding of all this fraud
will almost certainly leave the nation economically spavined.

The amazing thing is how standards and norms for lending collapsed as completely
as they did the past five years. One day you had bankers who retained a notion
that lending per se required some prudent evaluation of the borrower's character
and of the thing or enterprise borrowed for - and the next day these protocols
vanished. Once again I challenge the punctilious physicists out there by
asserting that this astounding transformation is the product of entropy.
Basically, you get a given system - for example the US economy - over-stoked on
cheap energy (and even at $3 a gallon gasoline is cheap), and the system will
throw off gobs of entropy. The more profligate the energy consumption, the more
entropy results. It then expresses itself in various kinds of disorder, meaning
anything from the immersive ugliness of the American built-up landscape to the
behavior of people formerly attuned to such governing principles as moral hazard
to retain the functional legitimacy of their livelihoods.

It is really a sort of systemic disease, generating poisons that seep into the
far corners of the organism affected, in this case the USA. It will be manifest
in the personal ruin of individual families, the collapse of institutions, the
rising crime rate, and the rapid physical decay of things built too carelessly
to be worth caring for.

I went around some neighboring towns here in upstate New York to look at the
real estate yesterday. I was impressed by how uniformly crummy everything was -
and not only because it is nearly spring and layers of old dog shit are being
revealed in the melting snowbanks. In the old houses priced above $300,000, 
the rotting sills and delaminating surfaces are plain to see. Of course, the
buildings are worth something, but my guess is less than a third of the asking
price by any realistic valuation. But at least these things were made of
materials generally found in nature. The new houses were all glue and vinyl, 
and of course they were mostly built in places dissociated from any town itself,
meaning the hapless owners will have to own multiple cars to live there and make
multiple trips per day - not a good prospect for the years ahead.

The story will be the same all over the nation. The owners of these things 
will get into terrible personal financial trouble. The property market will
re-value the buildings, discounting all the previous wishful thinking about
price. And the financial markets will stagger and collapse as the process
thunders through the mendacious operations that all this wishful thinking
spawned.
_____

See also "Subprime bust forces families from homes" 
by Adam Geller, Associated Press (March 25 2007)
http://news.yahoo.com/s/ap/20070325/ap_on_bi_ge/house_of_cards_5


http://www.kunstler.com/mags_diary20.html


http://www.billtotten.blogspot.com
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