Wall Street's 'Innovation' for Mortgages

VANCOUVER (Bullions Bull Canada) -- The United States housing market and real estate system is a very efficient machine.

It is not efficient at providing affordable housing to the broadest number of Americans. It is efficient at blowing up massive asset bubbles and burying Americans under mountains of unpayable debt.

We can establish the true agenda of the U.S. government in the housing market (and the banksters who pull its strings) by simply examining any and all "innovations" in this market which banksters and political shills alike agree make the U.S. housing market "better" than that of other Western nations.

The obvious starting point is the mortgage interest tax deduction. Here, the Big Lie is that mortgage interest deductibility makes U.S. housing "more affordable" by slightly reducing the financial burden of the debt. This is more of the infamous "static analysis" in which the propaganda machine specializes.

But first, a definition for readers not familiar with this term.

Analysis comes in two forms: static and dynamic. The difference is as stark as the difference between a two- and three-dimensional image. Exactly as with the two-dimensional image, static analysis lacks the depth of time.

In an ever-changing world, static analysis is a still photograph. It attempts to "analyze" some phenomenon with the unstated premise that nothing changes in the world around us. Remarkably, even the direct change taking place over time in the phenomenon being examined is ignored.

It is analysis simplistic by definition, and as with most simplistic thinking it is usually seriously flawed. The ultimate example of static analysis is Keynesian economics, otherwise known as our credit-based economic system. The premise of Keynesian economics is the epitome of simplicity.

There are economic advantages (in terms of a "stimulus effect") from introducing debt/credit into any economic system. Thus, Keynes and his modern-day disciples tell us that since taking on debt once (and only in a small amount) is advantageous, we should do it all the time, forever. It is the "logic" of the cocaine addict.

It is an "economic theory" (to be magnanimous) whre maxing-out our credit card is great but it is utterly silent on how the credit-card debt can ever be repaid once our "credit limit" is hit.

The closest these debt zealots come to ever even considering "sustainability" is to tell us that as long as the growth of debt is at or below the level of economic growth that everything is fine. Translation? As long as we can make payments on this debt then everything is fine.

What happens when the cumulative interest payments on debt become unsustainable? The deadbeat debtor begins to borrow additional money just to pay interest on debt. This has the direct mathematical effect of transforming the speed at which debt (insolvency) rises from a mere geometric rate (compound interest) to an exponential rate (compounding the compound interest).

All exponential functions in economic systems come to a quick and gruesome end. In the case of the unsustainable debt-bubbles of Keynesian economics, the obvious end is debt default. Greece has already imploded, and all of the economic games being played by our morally/intellectually/economically bankrupt Western governments are simply to delay the inevitable, and at a highly-destructive cost.

This brings us to dynamic analysis of the U.S. housing market, specifically the mortgage-interest tax deduction. The effect of this deduction (even with static analysis) is obvious: It allows Americans to finance higher levels of debt - i.e. it "raises the limit" on their credit card.

Now to the dynamic analysis: What happens when you raise the limit on everyone's credit card? You maximize debt and drive up prices.

The first half of that conclusion should be apparent to readers. Human nature alone tells us this must be so. It is the "Kid in a candy store" syndrome. Give people more buying power and they will spend more. The second half of the conclusion is an inevitable consequence of the first, i.e. more dynamic analysis.

At any given point in time there are a finite quantity of goods in any economy (housing being a prime example). Give everyone more buying power, and buyers begin to "compete" with each other for this finite supply -- with the result of that competition being soaring prices (the "housing bubble").

What this means should now be self-evident to all. The U.S. mortgage-interest tax deduction not only maximizes overall debt levels by enticing debtors to take on greater debt, but these higher debt levels drive up prices significantly.

Not only does this ultimately make U.S. housing less affordable for all, it is an artificial means to allow borrowers to become buried under debt levels their declining incomes cannot possibly sustain over time. Thus it is also a permanent recipe for an endless series of housing bubbles. One cannot argue with either arithmetic or human nature.

We can come up with a very simple title for the agenda of the U.S. government (and the banking oligopoly) to maximize debt-levels among Americans: debt-slavery. We see identical patterns with U.S. consumer debt and student loan debt. Debt slavery represents the pinnacle of "engineering" in the oligarchs' vision of a feudalist utopia: slavery where the serfs wear invisible chains and pay for their own upkeep.

But the oligarchs, and their foot soldiers of debt (the bankers) were not content with merely maximizing the debt on one mortgage for the debt slaves. They wanted to enslave the debt slaves with multiple mortgages. They enlisted the aid of the oligarchs who own/operate the propaganda machine.

Voila! Overnight, "second mortgages" (the ultimate shame/horror of our parents and grandparents) became "home-equity loans." Chumps weren't squandering equity they had slaved for years/decades building up, they were "accessing the additional credit they had earned."

However, for the rapacious vampires of Wall Street; this process of first enticing the chump into one too-large mortgage and then enticing the chump into a second and totally unnecessary mortgage takes too long. Thus, the vampires have announced yet another "innovation" in the U.S. housing/mortgage market: duping chumps into taking on a first and second mortgage at the time of purchase.

Making this new scheme even more heinous is the banksters have coupled this "innovation" with "the return of no down payment mortgages.

It gets better. Because the banksters are actually forced to back these loans with their own money -- the government won't insure zero down-payment mortgages -- they have "attached some strings."

The chumps receiving these "special" double mortgages must pledge vast amounts of additional assets as collateral in order for the banksters to bestow upon them the honor of two mortgages at the time of purchase. Of course what is actually happening here is high net-worth home buyers (who could easily finance a down payment) are borrowing the down payment (the second mortgage) -- and under extremely onerous terms.

The consequences of this new innovation should be clear to all who have begun to master dynamic analysis. Expanding credit leads to higher debt-levels and higher prices as the banksters blow up their next bubble, while the additional collateral means the banksters can steal much more of the chump's wealth when their bubble bursts and the foreclosure process begins.

I thought the U.S. now had a "Consumer Financial Protection Bureau"? Guess I was wrong...

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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