This story originated on The Free Republic.com forum, near as I can tell. It appears to be legit. From there, it was emailed to Karl for his take. Both the forum contributers and Karl have some veeeeeeeeeerrrrrrrrry interesting things to say about this and our near future. Plus there are many great links for your perusal.
They Aren't Really This Stupid, Are They?
from: Karl Denninger at the Market Ticker by way of FreeRepublic.comHere is the real stunner. A senior person at Treasury said to a small group of us that it is now official Treasury policy to extend and PRETEND on real estate loans.
I've been slack-jawed a couple of times during this debacle of an economic mess, but this has to take the cake:
In other words, the policy statement from last week says, if you can make an analysis that says even if the current value is less than the loan, if you can do a spreadsheet that shows if you extend for 3-5 years, and if the economy gets better, and if the loan can be amortized down to where the loan is no longer more than the value, then the lender does not have to take an impairment -write down. Loans are to be modified by rate reductions, deferral of reserves, deferral of amortization or what ever.
Did 'ya read all those "ifs" in there? What if one of the "ifs" doesn't?
It gets better:
Giant make believe. The free market seeking an equilibrium price is no longer economic policy. In short, the working of the free market is suspended. She went on to say it was administration policy that they will create new employment and by doing so they will boost the economy, and so then real estate values will return to old levels. There were 50 of the most senior and smartest real estate people in the room. They ripped her to pieces. It looked like one of the town hall meetings of August, except everyone there was a very senior, polished professional. At one point everyone was calling out or moaning at her. It was clear to all she had been given a few talking points and she was told to stick to them no matter how foolish she looked. The group told her in no uncertain terms this is terrible public policy. They said for jobs to be created you need to lower rents so the cost of occupancy was at a level to encourage more hiring. If the loan is kept at old levels and building values not reduced, then landlords can't reduce rents to where they need to be to make taking space by tenants economically viable. Retailers costs remain higher than they should be making it harder to lower prices to induce sales. So there is a massive make believe going on.
The pros get it (as have I and a few others.) What's more they communicated it.
When I pressed the issue of political interference she said - what do you want us to do, bankrupt all the banks.
That is the choice.
What does this tell you?
A. The problem is going to take much longer to solve than it should,
B. The banks are still very weak, so lending will not return anytime soon,
C. A massive refi problem is getting deferred to 2013-2015.
D. The administration is playing politics with the economy to a degree that is dangerous. There has to be a massive value reset for real estate. We are deferring the inevitable.
Actually, it tells me something else.
What are the odds that all those "ifs" pan out?
Statistically?
Uhhhhh.
What happens when they don't?
The banks all go bankrupt anyway, and the economy has been further trashed by the destruction leveled on employment as a consequence of this policy.
What's even worse is that this jackass Treasury Representative, assuming the conversation reported really happened, told a bunch of professionals that if all of those "ifs" don't pan out the banks are all going to blow up.
Want to know more? I'm not sure I do but here are the links anyway. Click here and here and here and it gets worse (are you freakin' kidding me) here and this guy is asking some very good questions too. Click right here. And as a two year old was recently overheard to say, worser and worser right here. And finally, if you would like to know who is buying favors from your favorite elected servant this time around, click right here.
