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The National Debt is a “Liar’s Loan”

31 Aug

I think they mean "You're"  [courtesy Google Images]

I think they mean “You’re” [courtesy Google Images]

Investopedia defines “liar loans” as,

 

“A category of mortgages known as low-documentation or no-documentation mortgages that have been abused to the point where the loans are sometimes referred to as liar loans.  On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application.  On other loan programs, such as no income/no asset (NINA) loans, no income and assets are given on the loan application form. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.”

By “simply stated,” Investopedia means that, even though I might earn just $20,000 per year, I could walk into bank, “simply state” that I earned $50,000 per year and the bank would take my word as true without verifying my income.  The bank would then issue a mortgage for a house appropriate for a $50,000 annual income rather than a $20,000 annual income.   Because the bank wouldn’t bother to verify my income, I’d be free lie about my income and therefore move into a house that was perhaps twice as large as a house that I could actually afford.

At first, moving into the more expensive house might seem cool.  But inevitably, it would become apparent that I’d over-extended myself by lying about my income and borrowing more than I could afford to repay.  Then, based on my original lie, I’d lose the house and my equity to foreclosure and be forced to go back to living with my folks.

And the banking system that accepted and even encouraged my life would be stuck with a non-performing mortgage and a vacant house that couldn’t be sold.

The lesson is obvious:  When borrowers are allowed to lie about their income or debt levels, everyone—both lenders and debtors—lose.

This lesson doesn’t only apply to mortgages and homeowners.  It also applies to bonds and governments.

For example, our national government claims its National Debt is “only” $17 trillion—but the Congressional Budget Office has calculated the total national debt to be over $200 trillion.  The $17 trillion figure is a lie.

When the world accepted the government’s “word” that the National Debt was less that $17 trillion, the world was willing and eager to lend to Uncle Sam.  But, because Uncle Sam lied about the true size of his debt, those loans to the national government were every bit as much “liar’s loans” as the mortgage moneys loaned to borrowers who lied about their incomes.

Investopedia explained more about “Liar Loans”:

 

“These loan programs are designed for borrowers who have a hard time producing income and asset verifying documents, such as prior tax returns, or who have untraditional sources of income, such as tips, or a personal business.”

Do you suppose our government has a “hard time producing income and asset verifying documents”?  Does government lie about the size of its debts, assets, inflation and unemployment?

What about being able to spin money out of thin air?  Or cause inflation?  Do those powers count as an “untraditional source of income”?

 

“These loans are called liar loans because the SISA or NINA features open the door for abuse when borrowers or their mortgage brokers or loan officers overstate income and/or assets in order to qualify the borrower for a larger mortgage. “

“Overstate” means lie.  So does “understate”.

Liar loans don’t merely overstate income and/or assets.  They also understate national debts, inflation rates, unemployment rates, etc. in order to qualify for more credit.

The “liar loans” that helped fuel the real estate boom of the early 2000s, also helped trigger the financial collapse of A.D. 2008 that lingers to this day.

Today’s national debt is fundamentally identical (on a global scale), to the liar’s loans of the early 2000’s.  Just as local banks could knowingly issue overly large mortgages to unworthy credit applicants, so the world loaned excessive amounts of money to the US government in the form of bonds and trade deficits.

Both the local banks and the world’s creditors thought “this time it’s different”.  “This time” they didn’t have to be hard-nosed about enforcing traditional lending requirements or performing their due diligence.  “This time” the system was so smart, so sophisticated, that local banks (and the world’s creditors) could safely lend tens of thousands (or tens of trillions) to individuals (or governments) that lied about their incomes, assets and debts.

But, in fact, “this time” it wasn’t different.  “This time” it’s never different.  No one can safely lend money to borrowers who are unable or unwilling to repay their loans.  No one can safely issue loans based on lies.

When creditors do lend to debtors who lie about their incomes, assets and debts, the fault is not only with the borrowers who lied about their incomes—it’s also with the bankers and lenders who allowed their lies, believing “this time it’s different”.  Bankers and creditors who knowingly lend to liars aren’t the victims of fraud—they’re co-conspirators in the fraud.  So, when the moment inevitably arrives when the creditors and borrowers are forced to face the consequences of “liars loans” both sides deserve to suffer losses.  The liar will lose his overly large home and his equity.  The creditors will lose their principal.  Both sides will be impoverished by their willingness to lie and to knowingly accept lies.

Just as the inability to repay the loans given to unworthy mortgage applicant “liars” helped trigger the “Great Recession” of A.D. 2008, the inability of our government to repay the loans that comprise the National Debt will likewise trigger a global “Greater Depression” in the foreseeable future for exactly the same reasons.

In the end, our theories of economics and credit aren’t based on mathematics and financial formulae so much as morality.

When it comes to credit, if you’re lyin’, you’re dyin’.  Maybe not immediately.  But inevitably.

 
13 Comments

Posted by on August 31, 2013 in Banking, Credit, Debt, Lies, Values

 

Tags: , , , , ,

13 responses to “The National Debt is a “Liar’s Loan”

  1. Pat Fields

    August 31, 2013 at 11:43 PM

    If one accepts banknotes as ‘money’, then, to the issuer of banknotes, no debt is unpayable. Be that as it may, BECAUSE any debt CAN be paid with limitless issue of banknotes, it can exceed the productive capacity of an economy to service, in real terms by natural limits on raw goods availability..

    The REAL problem with the banknote scheme (or Treasury Note) is that it must be loaned into circulation as a Principal Amount at Interest. The total owed with Interest service banknotes always exceeds the Principal Amount, forcing no other source for Interest but NEW borrowing in NEW Principal Amount on which NEW Interest service accrues. Thus, currency is automatically inflated by interest, in turn inflating by the rate of new currency impelled into circulation. The process is a ‘perpetual ‘Positive Feedback Loop’, growing in an exponential pattern.

    It’s easy enough to see from that succinct description, that it’s economically self-destructive. If not recognized as systemically inherent in the Note scheme itself alone, but its effects rather presumed to flow from human avarice and cupidity, then ‘new’ faces, plying ‘new’ Notes can easily be foisted over and over again.

    Paper Rots, Coin Does Not.

     
  2. Martens

    September 1, 2013 at 1:18 AM

    Funny how the world’s credit rating agencies have colluded in the US government’s misrepresentation of its credit-worthiness.

    It wasn’t until August of 2011 that one of them (Standard & Poor’s) even downgraded the United States one notch from the AAA rating it had since the 1940s.

    Perhaps being “too big to fail” has its privileges.

     
    • Pat Fields

      September 1, 2013 at 1:40 AM

      Martens, if the ‘debtor’ has capacity to create ‘money’ at will, how can its credit rating ever be downgraded?

       
  3. Anthony Clifton

    September 1, 2013 at 5:19 AM

    money, and nation raping…the same “people”…?

    http://www.voltairenet.org/article179295.html

    who print the currency & OWN the Media….?

    http://buelahman.wordpress.com/

    “THEY” must really be SPECIAL…write ?

     
  4. mike

    September 1, 2013 at 7:03 AM

    Pat, if I mat interject…maybe it is anticipated, at least it is by me, that they will lose the “capacity to create” before all their “creations” become due.

     
    • mike

      September 1, 2013 at 7:04 AM

      may

       
  5. palani

    September 1, 2013 at 7:24 AM

    The U.S. of A. is a municipality. A city. More accurately a capital city. And a municipality is (by Bouvier)

    MUNICIPALITY. The body of officers, taken collectively, belonging to a city, who are appointed to manage its affairs and defend its interests.

    The question is not the size of the debt but who the debt belongs to. Or rather who the debt does not belong to if you are the one being asked to repay this debt. I don’t own any part of this debt because I hold no FRNs or other obligations of the U.S. of A under the 14th amendment. The debt belongs to the president as he is chief among all officers appointed to manage the municipality affairs and his responsibility is to his creditors. Not to me though.

     
  6. pop de adam

    September 1, 2013 at 11:45 AM

    It seems as if everything that has come to be after the advent of debt based money is recycled back into itself as collateral for more of the same. Money was once but a proxy between a pair of goods that were either unripe or otherwise incompatible exchanges. If you were able you simply made the exchange and the buisness was finished. By law and custom a lamineer was applied to all exchanges making them all a regulated enterprise. Initially I imagine this was done as a public utility, not of any real consequence to actual exchanges. Since we have all have been using this debt laden currency nothing is actually paid for, this also means no one realisticly owns anything. If you can’t own anything, why pay taxes towards it? If we are really only tenants why continue calling them taxes when they should properly be called rent? If taxes are levied against property and rents there from, shouldn’t the “state” itself be the ultimate taxpayer, if you honestly assert it they will insist upon asserting their ultimate ownership of anything.

    I read an exchange on some blog where one person was extolling the concept that rights to property were not inviolate and that it was but a granted privilage to be able claim property as one’s own, the “state” being the grantor. What really blows my mind about such a course of logic is; the whole purpose of the “state” and “law” was to protect life and property. If I have the state telling me my claims to property are invalid, how can I also respect what amounts their claim to the very same property? If I can’t own it as an actual man, how can something as ethereal as the “state” lay claim to it? If no one can own anything, no one can own anything, negating any and all claims. If I am damaging the “state” through inaction, who am I really hurting other than myself? If I again am actually damaging the “state” then I was never getting out of it what I was putting into it. Social Security wouldn’t have ever existed had people planned for their own future, mortgaging this burden upon another generation, when this wasn’t enough it was proped with “private” concepts such as public and private pensions, IRAs and 401ks(regulated by the same entities steered by speculation upon the unrealized). This is still not enough and now we are on the prepice of the ACA(obamacare), my brother jumped through the hoops to sign onto it, so I was able to read some of the paperwork, what I noticed was it amounted to assigning a power of attorney. They wanted information about work income, bank accounts and savings, probably in an effort to recoup losses. After all this if he really needs care as an emergency, he still gets to go to the ER like anyone else before and after. Since there is no legitimate claim to anything at this point, there should be absolutely no shame in simply claiming bankruptcy in a world that is shown to be bankrupt.

    pardon if this be rantish.

     
    • palani

      September 1, 2013 at 1:25 PM

      @ pop “Since there is no legitimate claim to anything ….”

      My claim to approximately 300 cantred is well documented and uncontested, legal notice has been given and possession taken. Hope you aren’t saying this is not a legitimate claim.

       
      • pop de adam

        September 1, 2013 at 2:40 PM

        If I were to claim that what is yours is mine and brought it to actual realization, then what is mine(formally yours) is vulnerable to the same conclusion. Doesn’t this seem circular and self defeating? Such a claim on its face admits as much; “I want what is yours to be mine.” Right in the middle of that quote, is the word “yours”.

        “Hope you aren’t saying this is not a legitimate claim.”

        Hmmm, It is a claim, but is it a fact? The moon is made of green cheese. I was not stating there are no legitimate claims myself, but there are those who propose that there are none. Those who propose such are also often forwarding a claim to property not currently their own. If we allow this concept to fester as soon as the property is appropriated, why not simply turn the tables and make the claim to what was appropriated? After all no one really owns anything, right? If no one owns anything how can such a claim even be instigated?

         
      • palani

        September 1, 2013 at 4:33 PM

        @ pop ” If no one owns anything how can such a claim even be instigated?”

        Our ancestors knew well how to initiate claims. When you discover something abandoned you are entitled to abate the nuisance and hold that thing until a better claim comes along … and then you are permitted to charge for the service.

        Here is your example for the procedure … http://i50.tinypic.com/5dutqs.jpg

         
  7. pop de adam

    September 2, 2013 at 2:54 PM

    The example is a good find, especially as it was published in 1937. I think your ideas pertain mostly to abandoned property. I was attempting to outline how some people think of other people and property as things to be imposed upon to remedy what is wrong in their own lives, rather than either abandoning the notion or creating a solution that imposes upon no one. Does it serve justice to create justice for one while imposing injustice upon another to create said justice?

    From The Law, by Frédéric Bastiat

    “As a friend of mine once remarked, this negative concept of law is so true that the statement, the purpose of the law is to cause justice to reign, is not a rigorously accurate statement. It ought to be stated that the purpose of the law is to prevent injustice from reigning. In fact, it is injustice, instead of justice, that has an existence of its own. Justice is achieved only when injustice is absent.”

    Somehow I have come to think that this logic is entirely lost to many these days.

     
    • palani

      September 2, 2013 at 6:12 PM

      @ pop “it was published in 1937”
      This was actually published in 1837. Antoine Leclaire was a Frenchman who ran a trading post. The Iowa town of Leclaire was named for him. While others were waiting for the U.S. government to engage the indian in treaties he engaged in his own treaties with the Indians and was given several tracts of land .. exclusive of U.S. patent. http://en.wikipedia.org/wiki/Antoine_LeClaire

      ” Does it serve justice to create justice for one while imposing injustice upon another to create said justice?”
      Leclaire’s horse might have been abandoned or it might have run off or it might have been stolen. Who is to tell? When people abandon the concept of private property because they lack the requisite substance to purchase it or to hold on to it …. whether they do it of their own accord or because of improper training .. the end result is the same. Abandoned property is property lacking a suitable owner. Learn to abate the nuisance. If nobody else chooses to step in and claim this ownerless property then I propose to.

       

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