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103

"The End of Our Delusion!" Aug 3, 2007 "The End of Our Delusion!" Aug 3, 2007 Is this such a far-fetched vision beyond the reach of 21st century man? Quite the opposite. Once the decision is made to put the oligarch-made global financial bubble out of its misery, we can quickly re-attain this starting point. We can return to the days when (locally managed) banks knew it was in their interests to offer mortgages only to those who could actually save up for the deposit and afford the ongoing repayments-before the days when it didn't matter because they could just on-sell them. Before debt became a commodity to be bought and sold and traded. And when your local council didn't need to become party to such transactions; before, like many Australian councils today, they felt the need to put tens of millions of dollars into risky "collateralised debt obligations" just to try to get ¾ % more interest on investments that should be put into building local infrastructure. Then those bankrupt councils, just like banks that merge, are amalgamated in an attempt to keep them afloat, and hopefully save some money. It won't work, as Premier Beattie obviously knew. But do not despair, we have dealt with something similar before, albeit on a much lesser scale. The "roaring '20s" was a period of speculative frenzy where even the smallest investor tried to "get rich quick" via various schemes and speculative investments, including property, mostly on borrowed money. As Franklin Delano Roosevelt took office in 1933, half of all mortgages were threatened by foreclosure, and nearly one-third were in the foreclosure process. The entire system was breaking down. New mortgage lending virtually ceased. Roosevelt recognised that this was a problem of the banking and credit system itself, hence he declared a national economic emergency, including a Federal Bank Holiday, and took government control of the banking system for a full reorganisation so it could once again issue credit and allow the economy to function. Government examiners literally went into the banks and looked at their books to work out how to keep the banks functioning, writing off bad loans and debts, and making cash available for the banks to honour depositors. Effectively all foreclosures were halted, and mortgages reworked at appropriate deflated market values and long term, low interest rates. FDR then moulded a new Federal agency called the Federal Home Loan Bank Board, its mission to steer new credit into the housing sector to help potential new homeowners secure 20-30 year mortgages (at low interest rates and flexible initial payment terms) or to refinance existing ones. Every loan was handled on an individual basis, with a view to helping people reorganise their lives, including helping them find work, often in a government-sponsored program.* In conjunction with the federally-directed public works and infrastructure projects of the New Deal, America built its way out of the depression. We must do the same again, now! there are two big bombs ready to explode: the imminent collapse of the yen carry trade, and the popping of the bubble of collateralised assets. This will be the biggest blow-out in most people's lifetime.

14/09/2007