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Waiting for the Other Shoe to Drop June 19, 2022

Posted by geoff in News.

So we’ve got a ton of mortgages out there with interest rates around 3%. But now inflation is logging in above 8%. Mortgage rates have already doubled, but there’s no way for the lenders to recoup the erosion of their assets for the existing loans.

So at some point they’re going to come to the government, hat in hand, looking for relief. And we’ll be on the hook for another few $trillion.

Brings to mind P. J. O’Rourke’s take on the $500 billion Savings and Loan Bailout in the 80s (from Parliament of Whores):

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 will end up costing every man, woman and child in America $2,000. Except it won’t. Because not every man, woman and child in America pays taxes. Babies don’t pay taxes. . . . And no taxes are paid by our unemployed, lay-about brothers-in-law, bum cousins, noodle-brained sisters who give all their money to EST and crazy uncles who are forever losing their shirts in business ventures such as “CHAT-EAU—the catnip flavored blush wine for your cat.”

That leaves you and me. We’re about the only people in America who pay our taxes. So when all’s said and done, this savings-and-loan bailout is going to cost us $250 billion apiece.

No doubt you have various questions about the savings and loan industry and the nature of its financial difficulties and the type of legislation necessary to remedy the current problems and prevent their recurrence.

A. Let me see if I can answer that as succinctly as possible. . . . Savings and loans are kind of a nitwit
populist creation of the Depression era.

. . .

…another nitwit populist creation of the Depression era, Jimmy Carter, got into office, and the economy started to look like an election in Haiti, and interest rates went on that taxi ride to Uranus that we talked about earlier. S&L owners—who are, after all, just a bunch of dumb guys from the sticks—were left with nothing to make money from but 6 percent mortgages that they couldn’t get rid of for thirty years. [Sound familiar? -geoff]
Meanwhile, S&L depositors didn’t think 3 percent interest was a very good deal anymore and were taking all their money out of savings and loans and investing it in one gallon of unleaded gasoline. S&Ls started losing money with both hands.

Q. Tough luck. If S&Ls are losing money, let them close up shop, give people back their savings and be done with it. Why should me and PJ have to pay through the nose for it?

A. . . .
Savings and loans can’t just close up shop and give people back their savings, because savings and loans don’t have any money. The money is all out at the fur-bearing trout farms, and we can’t get money back from the trout because trout don’t have pockets.



1. Jimbro - June 19, 2022

We’ll pay it all with Bitcoin!

2. vaitguy - June 19, 2022

The run-on Chinese local/regionals (banks) should be a real bell weather for the worlds second largest economy. How many news outlets are reporting Jamie Dimon’s hurricane?

3. geoff - June 19, 2022

I would think it was pathetic that so few pundits are predicting what seems obvious to us, if I hadn’t come to think that they’re deliberately suppressing that information. I mean, they can’t be that stupid.

Although the administration does seem to be deriving its economic policy from Modern Monetary Theory, which is inherently kind of dumb (more for what it doesn’t consider than what it does). Hence their plan to cool off the economy by raising taxes. Not a smart move to play when your populace is recovering from a pandemic and economic shutdown.

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