The Case for Debt Repudiation and why it is a Good Idea
The Case for Debt Repudiation and why it is a Good Idea
Debtors are revolting today against exorbitant interest rates and fees and other aggressive tactics by the too big to fail banks.
Congresswoman Kaptur advises her constituents facing foreclosure to demand that the original mortgage papers be produced. She says that - if the bank can't produce the mortgage papers - then the homeowner can stay in the house.
Portfolio manager Marshall Auerback argues that a debtor's revolt would be a good thing.
Walking away from home mortgages has actually become mainstream, being trumpeted by CBS, CNBC, the New York Times, the Wall Street Journal, NPR and many others.
There is in fact an established legal principle that people should not have to repay their government's debt to the extent that it is incurred to launch aggressive wars or to oppress the people.
As powerful as these Wall Street banks may seem, they are also exquisitely vulnerable. Right now virtually all of them are dependent upon the government keeping accounting standards lax enough for all of them to claim to be functional businesses. It is generally accepted that if the major banks on Wall Street were forced to mark all of their assets to market tomorrow, they would all be either insolvent or close to it.
Thus their "healthy" financial status is already illusory. So imagine what would happen if large numbers of those dubious loans on their balance sheets that they have marked down as "performing" were suddenly pushed ahead of time into the default column. What if Greece, and the Pennsylvania school system, and Jefferson County, Alabama, and the countless other municipalities and states that are wrapped up in these corrupt deals just decided to declare their debts illegitimate and back out?
The big picture, to me, is that these companies are almost totally dependent not only upon the continued good faith of aggrieved debtors, but upon the government recognizing the (sometimes fraudulent) loans made to those debtors as fully performing.
Similarly, it is also a fact that the private sector debt in the United States exerts the same power over the banking system as the public debt of the United States exerts over our international creditors. Collectively, the debtors are in control. Not the creditors. This is why the Creditors, not the Debtors, will be making most of the concessions in the years ahead. Whether the US public debt is inflated away, rescheduled, or repudiatedor some combination of all threeit doesn't matter much. The process is already underway.
Bottom Line: The way to deal with criminals is to treat our contracts with them in a manner reciprocal to how they have treated their contracts with us.
Will a growing movement to abrogate contracts with institutions who have broken the law be disruptive? Yes.
Will that require painful adjustments? Yes.
Find more information : http://www.financialpolicycouncil.org/BlogDetails.aspx?id=19
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