Thursday, March 25, 2010

Rewarding Bad Behavior

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is a great way to get more of it. Capitalism hasn't failed but fascism (i.e. corporatism) is failing the United States. Granted, those on the correct side of the trade can never lose, because they are made whole when their bets are wrong. When wrongful behavior is rewarded, more wrongful behavior occurs. This is known as positive reinforcement in psychology and it tends to work, all other things being equal.

The "trickle down" effect is to create a society that is devoid of concern over "doing the right thing." We all see the large banks and Wall Street firms, who were rewarded instead of allowed to go bankrupt. It is a fact that JP Morgan (the worst of the bunch even though Goldman Sachs gets all the attention), Goldman Sachs, Bank of America and Citigroup should no longer be corporations. They should have been liquidated as the "rules" of capitalism require.

If this had occurred, the economy would likely have already bottomed by this point, albeit at scary levels in the stock market, housing prices and unemployment figures. We would actually be in a position to move ahead in a positive manner from a lower level of economic activity. In other words, we would be ready to rebuild a new economy based on something besides debt, consumption and financial fraud.

Instead, we are now facing an ongoing crisis that has only just begun. The problems are hidden and papered over but nowhere close to being gone. The amount of bad mortgage debt on the balance sheet of the U.S. government is staggering. The degree of financial firm insolvency lurking off balance sheet is staggering. The entitlements waiting to be paid out to eager baby boomers is staggering. Rather than address these problems directly, the "powers that be" are acting as vultures.

The current cash value of many assets of the United States is being stripped out, leaving paper IOUs behind. This will foment further economic stagnation and/or collapse at a later date. More debt will be conjured into the air and sprinkled on the zombified economy as needed to keep the sheeple complacent. More bad behavior to hide past bad behavior.

This is the nefarious aspect of a paper fiat monetary system backed by nothing that is coming to fruition. In a very biblical sense, what has been sewn will be reaped. Absolute power corrupts absolutely and the ability to create money out of thin air is no exception. The latest move by Bank of America to generously write down principle on mortgages in Massachusetts is tainted by this same mistake of rewarding bad behavior.

From the article:

The forgiveness would be offered in two stages for the riskiest loans, including subprime loans and loans that offered borrowers multiple options for how much to pay each month.

Ineligible are 30-year fixed-rate loans.

Huh? Why would 30 year fixed mortgages be excluded? Why would those who avoided the toxic mortgage products not get the same deal as those who were either duped by these exotic products or looking to speculate? Anyone think the people who take the write down are striking a deal with the devil that in a year or two they will wish they hadn't signed?

Rewarding bad financial behavior is apparently now the norm in the United States. The rewards are asymmetric, of course, and accrue largely to those who have already purchased politicians. But we ants are observant creatures and we learn to emulate those in positions of power. Debt will no longer be respected by the ants. This trend is picking up steam and set to accelerate. Money owed? Who cares. Default. Walk away.

If you pay your debts and make good on your obligations, you are a sucker. Who needs good credit when everyone else has lousy credit? The government will step in and loan you money if you're a credit risk! The government will offer you subsidies and enticements because it is your right as an American to buy new houses and new cars whether you can afford them or not. If you can't make the payments, just stop paying and enjoy the item for free as long as possible until it is repossessed.

Financial lawlessness begets more lawlessness. The ants are starting to learn how the game works and this won't be good for banking profits over the next decade. Of course, the bonuses will still need to be paid via hook or crook...

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