The End of Debt Why the Banks Must Be Allowed to Fail

As is well known, the foreclosure rate has been near record levels for the past few years, but it
hasn't been as high as one might expect. Homeowners are stressed, and many have been forced to quit
paying for their homes. So they stop paying and wait for the other shoe to drop. In many cases that
hasn't happened. I discuss the phenomenon in Are "Strategic" Defaulters on Home Mortgages Like
Barbarians at the Gates of Rome? among other places.

It bears repeating that the main reason the banks are not more aggressively foreclosing on
delinquent mortgages is that they cannot do so without revealing their own true financial condition.
And this refers to the fiscal sleight of hand, aka fraud perpetrated by the financial reporting
regulations which were changed in 2009 to permit banks to carry loans at their historical rate rather
than their actual market value, which is much lower. If the banks were to revalue their assets to reflect
market reality, they would be declared insolvent and thrown into dissolution. Bringing a foreclosure
proceeding is an event that triggers such a revaluation. Thus the banks have had their hands tied. They
can't foreclose in large numbers without failing themselves. Since the banks largely contributed to the
underlying problems with the economy and the housing markets, this is completely appropriate. They
should be declared insolvent in either a free-market or a moral sense.

It should have happened long ago.

The founders of the United States hated central banks and were well-aware of the mischief they
could cause. That is why they refused to establish a national bank in the first place, and why they
ensconced gold and silver as the only money constitutionally allowed. It was a dark day in
constitutional law when the Supreme Court read that requirement out of the law. As the founders
understood, but perhaps the Supreme Court did not, if bankers are allowed to control the flow of
money, they will eventually control all the assets of the nation. Thomas Jefferson wrote repeatedly of
the risks of banks controlling the money, saying, for example, that he considered that banking
institutions are more dangerous to our liberties than standing armies....The issuing power should be
taken from the banks and restored to the people, to whom it properly belongs." James Madison put it
this way: "History records that the money changers have used every form of abuse, intrigue, deceit,
and violent means possible to maintain their control over governments by controlling money and it's
issuance."

The founders feared a return to what they had seen in European history: that the banks would
end up with all the money and control over the government.

We now stand dramatically poised to have that happen. If the banks begin foreclosing freely,
they will end up possessing huge amounts of property obtained for very low prices from the very
people they duped into borrowing foolishly. Only the fact that the banks would themselves suffer
severe economic consequences for these loans if the truth came to light prevents them from acting to
dispossess millions of people.

And what are our politicians doing about that? They are transferring trillions of dollars to the
banks to enable them to get back down to the business of dispossessing people. There's the TARP
program itself, of course, but also and with far less fanfare are actions by the Federal Reserve in buying
up two trillion dollars worth of delinquent and worthless mortgages from the banks so as to repair their
balance sheets, and in channeling untold amounts of money to the banks through a carry trade wherein
the banks are permitted to borrow money from the fed (enabled by the federal government) at almost
zero percent interest and lend it to the federal government at over 3% interest. Banks are free to make
that 3+% profit on any amount of money they care to take in.

And then there is the unlimited funding of Freddie Mac and Fannie Mae, which have lost, and
will lose, so much money that Congress felt it necessary to lift the 450 billion dollar guarantee and
replace it with an unlimited one. That is money directly into the pockets of the largest banks.

These actions were all taken to preserve the banking system. And that is what they are going
to do. And when the banks have finagled their way back into solvency by hook and mainly by crook,
they will begin a wave of foreclosures that will put millions of people onto the streets and go far
towards completing a social break-down of the country. It is a terrible irony that a president elected by
people supposedly interested in human rights should be the tool for this final debacle. It displays the
shameful arrogance of the left-wing intelligentsia that they can watch what is happening in blissful
ignorance. The facts are perfectly clear to anyone not too smug to look.

Rather than restoring the banks to the condition they need in order to plunder the country,
perhaps we should allow them to fail immediately. Then we could abolish the federal reserve system,
remove the foot of the banks from our throats and their hands from our pockets, and restore some fiscal
sanity to the country.