Making Things 'Go Away' by Looking the Other Way

Here's a post by Robert Lenzner at Forbes that opens the can of worms that is the American banking system. The very title of the post should send shivers up your spine:

US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages

But then look at the horrors he exposes within the body of his article...

The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.

Which means...

They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.

All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.

But that means...

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.

And now comes the scary part...

Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.

Think that's bad? It can get worse...

The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.

About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks.

I just saw this statistic: a total of 3,825,637 foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on a record 2,871,891 U.S. properties in 2010, an increase of nearly 2 percent from 2009 and an increase of 23 percent from 2008. And the US census site states there 130 million homes in America. There are currently 5 million homes that are 60 days or more behind on their mortgage payments. That means 3.8% of all homes could be foreclosed in 2011. And if we use the 6 million figure from the above article, that means 4.1% of all homes could be foreclosed in 2011.

OK... that's all very scary stuff. So now the trick... let's all just look the other way.

I'll ignore the foreclosure numbers. Instead I'll focus on the fact that the stock market continues to recover...

Which means that the rich people are back at the malls shopping and juicing up the economy...

So maybe that 'trickle down' economy will deliver some kind of job growth this year. Let's see... If every one of those top 0.5% decides to hire a butler, a valet/lady-in-waiting, a laundress, a chauffeur, and a gardener for their roughly 650,000 homes, then we can create 3.25 million jobs in America in 2011 and cure half the unemployment. This would bring unemployment down from 9.4% to a manageable 7.3%! And if we get these households to throw in another two chambermaids, this would boost employment from 3.25 million to 4.55 million jobs and bring unemployment from 9.4% down to a low 6.5%. Obviously the unemployment problem in America is only going to be solved if we bring back oodles of domestic servants.

So... lower & working & middle class & lower upper class people of America, rise up, throw off your unemployment chains, get a placard, and stand along the streets in your most upscale shopping malls, and protest. Carry signs demanding that the rich take you in as domestic help so that the unemployment problem can be finally and fully solved. We can deal with the misery, the pain, and the same of unemployment by reaching back to an age old remedy used by the idle rich from times immemorial: put the useless and idle classes to work as house servants!

Rejoice... problem solved! Good times are ahead! No need to worry about 3.8% or 4.1% of the houses being seized and foreclosed upon in 2011. Instead, look at the bright side. There will be a lot of job opportunities in the employment field of domestic service. Better start now learning just how low to bow, just how much to curtsy as your better pass by. You will need to know how to deep a keen eye out for every whim of your betters so that you can rush to fulfill their every desire. Those are the 'jobs of the future'... bowing and scraping.

Now... don't you feel better?

For those not keen on my jesting about doom-and-gloom, here's something by Charlie Stross to make you cheerful about today and the future.